Securitization & Brazos Bankruptcy FAQs
What is securitization?
During Winter Storm Uri in February 2021, HILCO incurred significant power costs resulting from the effects of that abnormal and extreme weather event. In May 2021, the Texas legislature adopted Senate Bill 1580, which enables electric cooperatives to use securitization financing to recover the extraordinary costs incurred due to Winter Storm Uri. A separate bill was passed to allow other types of electric providers to use securitization as well. It allows the utilities to issue bonds to obtain the necessary capital to pay for the costs of Winter Storm Uri. This type of financing will allow HILCO to spread these extraordinary costs over an extended period of time and keep the monthly bills lower than they would be if securitized financing were not used. We estimate that this type of financing will result in savings of over $44 million compared to costs that would have been incurred using conventional financing. Securitization financing is a common method used by utilities to pay costs associated with extreme weather events, damage from natural disasters, etc. HILCO doesn't use long-term financing to pay power bills in the normal course of business, but this bill was so significant it was impossible to pay with operating funds.
Why was power cost so high during the Winter Storm Uri event? Was it limited to Brazos Electric and the entities who purchase power through them?
The extraordinarily high power cost during that event was charged through ERCOT to all power providers that purchased energy on the market during that time. The Texas Public Utility Commission, who directs ERCOT, set a market price cap of $9,000 megawatt-hour (“mwh”). This means that the price that can be charged for energy purchased through the market can be up to $9.00 per kilowatt-hour (kWh). ERCOT market prices remained at the $9,000 per mwh price cap for days, about 415 times normal pricing levels. This effected all power providers, not just Brazos or entities who purchase power through Brazos.
How extraordinary was the power cost for February 2021 following Winter Storm Uri?
The power bill for that month alone was equivalent to more than four years of normal power bills. It included substantial amounts owed to our wholesale power supplier, Brazos Electric. Brazos Electric filed for Chapter 11 bankruptcy in March 2021 and exited bankruptcy in December 2022. The bankruptcy court ultimately determined the amount we owed for power supplied during Winter Storm Uri.
Why does HILCO owe Brazos money if Brazos is the organization that filed for bankruptcy?
After Winter Storm Uri in February 2021, Brazos filed for bankruptcy. Pending the bankruptcy resolution, Brazos did not charge its member cooperatives, including HILCO, for most of the expenditures associated with Winter Storm Uri. The court accepted Brazos' bankruptcy exit plan in November 2022, which significantly decreased what Brazos owed ERCOT and its creditors. The amount that was owed to ERCOT did not go away but was reduced in the bankruptcy. HILCO’s portion owed to ERCOT via Brazos ended at $121 million. Before Brazos declared bankruptcy, the amount owed was $154 million.
What assistance is there for me to pay for this securitization charge?
To alleviate some of the burdens of this charge, the Brazos bankruptcy exit plan established a rate payer hardship fund. Brazos contributed $140 million to be invested and managed in trust for the program’s benefit and to cover program expenses. The Brazos rate payer hardship fund is a separate entity whose purpose is to compensate low-income members of Brazos distribution co-ops for electric bill surcharges stemming from the securitization and financing transactions. The fund is expected to mitigate 100% of the securitization charge (or comparable amount) for qualifying residential members. An estimated 134,000 households may qualify based on the initial single eligibility criteria of the Low Income Home Energy Assistance Program. LIHEAP is the national gold standard for qualification criteria for electric bill assistance. Applicants may also qualify if they currently participate in the Supplemental Nutrition Assistance Program, Medicaid, or Supplemental Security Income, or Temporary Assistance for Needy Families programs. Benefit qualification will typically last 12 months.
To date, the creation of this fund is complete and they are accepting applications. You may access the online application here at brazoshardshipfund.com. You may also pick up a paper application at any of our office locations.
Is HILCO asking for any state or federal government assistance?
At this time, there are no state or federal funds available to recover costs associated with Winter Storm Uri. The only relief that HILCO received was the option to use securitized financing. State lawmakers, during the 87th Legislative Session, enacted Senate Bill 1580 allowing the use of securitization for cooperatives to address this catastrophic event.
What does using securitized financing mean for the Members?
Ultimately, the costs resulting from Winter Storm Uri must be paid. Because these costs were so significant, they could not be paid from operating funds. Financing the costs is the only option. With securitized financing, a securitization charge will be included on monthly bills to repay the bonds and these ongoing financing costs. The securitized charges will remain effective until the bonds are paid in full. It will be based on energy usage and subject to adjustments periodically to ensure that we collect the sufficient, and only the sufficient, funds to timely pay the principal and interest on the bonds. If the energy usage in HILCO's service territory grows, the amount of the charge per kWh will decrease.
I joined the cooperative after the winter storm. Am I subject to the securitization charge?
Yes, the Senate Bill 1580 law requires the charge to be applied to all existing and new members’ bills. The securitization charge will stay with the meter until the securitization term ends after the year 2050. HILCO is required to apply the charge to all members in this manner.
I either went without electricity during the winter storm or drastically reduced my consumption. Why am I still having to pay?
Because HILCO is an electric utility that is part of ERCOT, rotational outages were mandated during the winter event. The employees of HILCO worked diligently and tirelessly during the storm and in the aftermath to quickly restore electricity to all Members, as we were permitted to do so.
All existing and new members within the service area of HILCO are obligated to pay the securitization fees in accordance with the Senate Bill 1580 law.
How will the securitization charge compare from one Member to another?
Since everyone uses energy differently, and the securitization fee is calculated per kWh, each Member will be charged a different amount.
How long will this charge be added to your bill?
The securitized financing is amortized, much like a mortgage loan, and requires the recovery of these extraordinary costs and expenses to be spread over a period of about 27.75 years. The term of the bonds that were securitized was in three groups or tranches. The first tranche will be paid in full after 2031, the second after 2040, and the third after 2050.
Every six months, the amount that is charged will be reviewed on a per-kWh basis and adjusted, if necessary, to ensure it is collecting the correct amount to satisfy the bondholders. As HILCO grows, the per-kWh charge is expected to be reduced as the securitized amount will be spread across the additional meter growth.
What are other electric utilities charging or doing to recover their winter storm-related costs?
The expenses to recoup for many utilities are also considerably high. After the winter event, the total cost to the entire State of Texas was estimated to be at least $190 billion. Within that cost, every electric utility had various levels of charges billed to them based on the amount of electric usage during that event. This catastrophic winter event turned into a catastrophic financial event for everyone.
To address winter storm costs, the majority of electric utilities have enacted or are considering increasing their rates. It's important to note that other electric utilities may not itemize the Winter Storm Uri charge on their bills. HILCO has chosen to separate these securitization charges to be transparent, while others may include them in their energy rates. At HILCO, the securitization charge is a pass-through charge. It is required to be billed, collected, and remitted by HILCO. It is not marked up or a profit to HILCO.
Would I be better off if I lived in a deregulated market with retail electric choice?
No. All utilities were impacted by Winter Storm Uri's extraordinary prices, even the Texas retail energy providers (REPs). In order to aid in their recovery from Winter Storm Uri, REPs will also increase their rates and may or may not be transparent on their bills as to what the charge is.
HILCO continues to be competitive when compared to other utilities, including those in the deregulated market. On average, we may not be the lowest, but we are comparable.
Can HILCO guarantee that Members have enough electricity in the event of another severe winter storm?
No. Since HILCO is a distribution cooperative and does not produce its own electricity, we, along with the rest of the state, must purchase energy on the ERCOT market. Because of this, there must be a sufficient power supply to fulfill demand. The entire electrical grid can collapse if supply is insufficient to meet demand. ERCOT has devised a set of emergency measures that can be used to deter this. These procedures may include mandating rotational outages to preserve grid stability under severe conditions. HILCO and all other ERCOT-regulated utilities must abide by any requirements for rotating outages.
How can I establish new service?
The phones at HILCO Electric Cooperative are answered twenty-four hours a day. If you are building a home, simply call the office and speak with a representative, or most service request can be completed online. They will set up your service and arrange for a member of our staff to come to your location and discuss options for your new service. If you have any problems with your existing service, you can call the office and speak with a representative who will send a serviceman to your location for repair. All calls are answered by HILCO Electric Cooperative employees whose offices are conveniently located in Itasca, Whitney, Elm Mott and Midlothian. During times of high call volumes, such as during an outage, members are also given the option to leave a voice mail message so that they do not have to wait for the first available representative.
Can I choose my electric energy provider?
When asked on prior member surveys, HILCO has asked the members if they wish to opt into competition. Every year the overwhelming majority of members indicate they do not wish for their electric cooperative to enter the deregulated market. Deregulation just has not proven to save the average residential customer money. When members judge their cooperative by the results it produces for them, HILCO members have every reason to be proud of the cooperative's board of directors, management, and employees as the members experience competitively low rates, are able to make contributions to the community, see solid financial strength, and have reliable electric service. HILCO is the leading force in promoting a strong economy in our area. Because a cooperative is owned by the local people and the businesses it serves, rather than far-away shareholders, it is a not-for-profit operation that returns excess revenues to its member-customer in proportion to the size of their electric bills. Our motive is to serve the members, not private profit.
How is a cooperative different than an investor-owned utility such as Oncor?
Cooperatives are democratically controlled with the one member/one vote principle. Additionally, cooperatives are not-for-profit organizations. When surplus margins occur, the members benefit by receiving patronage dividends.
How reliable is your service?
We continually work to ensure our members have the power they need, when they need it. Our work plans include everything from upgrading existing lines to meet the demands of our growing cooperative to maintaining clearances through tree trimming. HILCO’s ASAI average is 0.999481 ( so basically our electrical system’s reliability is up and operational 99.9481% of the time). However, due to storms, animals, or even vehicle accidents, we do have unavoidable outages. When outages occur, our focus is on restoring as many members as possible as quickly as possible and as safe as possible. The general guideline is to start at the substation level. By restoring service to the substation, many members will have their service restored. The next level would be at the feeder level, then the phase level, and finally, we work on restoring power at the individual transformer and service level. When possible, we will give priority to individuals who have a documented medical necessity for electricity. You can access the medical necessity form here at: Life Support Registration
What does PCRF stand for?
The electric utility industry possesses its own set of acronyms, PCRF is one of those. PCRF is an acronym for Power Cost Recovery Factor and it is something HILCO Electric Cooperative deals with on a monthly basis. The PCRF is the rate component, on all electric bills, that is a direct reflection of the fluctuating cost of fuel required to run an electric generation plant.
Since HILCO is a distribution cooperative, we purchase our wholesale power from a generation company, Brazos Electric Power Cooperative. Brazos generates and purchases the amount of electricity needed to meet its demand.
When fuel prices rise, it costs Brazos more to produce electricity and those costs are passed through to HILCO and its members by an increase in the PCRF. So while HILCO's rate for the price of electricity has not changed, members will pay more with an increased PCRF.
One way to think about PCRF is to compare it to the cost of gasoline for your car. Even though your monthly car payment (the rate) hasn't gone up, the car you drive is costing more to operate now because just as fuel prices have risen, for generated electricity, so have gasoline prices at the pump (the PCRF).
Increases in fuel prices do not just affect HILCO or Brazos - nearly every electric utility in the nation is facing this same issue. The demand for electric generation continues to increase. As we all know, with demand high and supplies lower, the price is going to rise.
To minimize the impact of this charge on our members, every attempt is made to "level" the PCRF monthly, rather than to pass on the sometime extreme monthly fluctuations from our wholesale supplier. However, significant changes in fuel charges may make it necessary to adjust the PCRF more dramatically.
The main advantage of monthly changes in the PCRF is that it is more responsive to changes in fuel costs. If fuel costs go down our members are not stuck with a higher cost indefinitely. Investor owned utilities, such as TXU, can only make rate adjustments for changes in fuel costs twice annually and must gain approval from the Public Utility Commission of Texas to do so. This means their fuel cost adjustments may remain higher for their customers for an indefinite period of time and no one knows for certain when or if fuel prices will decrease from their current levels.
What is securitization?
During Winter Storm Uri in February 2021, HILCO incurred significant power costs resulting from the effects of that abnormal and extreme weather event. In May 2021, the Texas legislature adopted SB 1580, which enables electric cooperatives to use securitization financing to recover the extraordinary costs incurred due to Winter Storm Uri. A separate bill was passed to allow other types of electric providers to use securitization as well. It allows the utilities to issue bonds to obtain the necessary capital to pay for the costs from Winter Storm Uri. This type of financing will allow HILCO to spread these extraordinary costs over an extended period of time and keep the monthly bills lower than they would be if securitized financing were not used. We estimate that this type of financing will result in savings of over $44 million compared to costs that would have been incurred using conventional financing. Securitization financing is a common method used by utilities to pay costs associated with extreme weather events, damage from natural disasters, etc. HILCO doesn't use long-term financing to pay power bills in the normal course of business, but this bill was so significant it was impossible to pay with operating funds.
What does using securitized financing mean for the members?
Ultimately, the costs resulting from Winter Storm Uri must be paid. Because the costs are so great, they cannot be paid from operating funds. Financing the costs is the only option. With securitized financing, a securitization charge will be included on monthly bills to repay the bonds and the ongoing financing costs. The securitized charges will remain in effect until the bonds are paid in full. It will be based on energy usage and subject to adjustment periodically to ensure that we collect the sufficient, and only the sufficient, funds to timely pay the principal and interest on the bonds. If the energy usage in HILCO's service territory grows, the amount of the charge per kWh will decrease.
How extraordinary was the power cost for February 2021 following Winter Storm Uri?
The power bill for that month alone was equivalent to more than four years of normal power bills. It included substantial amounts owed to our wholesale power supplier, Brazos Electric. Brazos Electric filed for Chapter 11 bankruptcy in March 2021 and exited bankruptcy in December 2022. The amount we owed for power supplied during Winter Storm Uri was ultimately determined by the bankruptcy court.
For more information click here
What is a Demand Charge?
Demand is the total amount of electricity being used by a consumer at any one time. Demand varies from hour to hour, day to day, and season to season. This usage, which is expressed in kilowatts (not kilowatt-hours), is called the "demand" on the system. HILCO Electric Cooperative monitors demand over 15 minutes. The customer is charged for the highest 15-minute average recorded on the demand meter. After HILCO Electric reads the meter each month, demand is reset to zero, and the meter starts over, recording the highest 15-minute average for the next billing period.
To illustrate how demand charge can effect an electric bill, let's look at two simple examples:
Running a 50 kW load for one hour would result in usage of 50-kilowatt hours (kWh) and accrue a demand charge of 50 kW.
- 50kW x 1 hour = 50 kWh.
- Demand = 50 kW.
Running a 5 kW load for 10 hours would also result in usage of 50 kWh but would only accrue a demand of 5 kW.
- 5 kW x 10 hours = 50 kWh.
- Demand = 5 kW.
Both examples use the same amount of energy (50 kWh) and perform the same amount of work. However, the resulting bills will be very different.
Applying HILCO Electric's General Service Large Rate demand charge of $ 7.00 per kW and an energy charge of 3.307 cents per kWh to both examples will produce the following results:
- Bill Number 1
- 50kW x $ 7.00 = $ 350.00
- 50 kWh x .03307 = $ 1.65
- Total = $ 351.65
- Bill Number 2
- 5 kW x $ 7.00 = $ 35.00
- 50 kWh x .03307 = $ 1.65
- Total = $ 36.65
WHY SO DIFFERENT?
The actual energy (kWh) use was the same, and the work done is the same. The difference between the bills is based entirely on the highest demand recorded during any given 15-minute period that month.
WHY ARE DEMAND CHARGES USED?
Demand charges are the way your co-op pays for generation and distribution capacity it needs to meet peak demand that occurs at any given time. The demand charge your co-op pays to its wholesale power supplier is also calculated on the basis of the highest demand during the month. HILCO Electric uses the same method to bill demand to its demand rate customers as we are charged by our supplier.
WHO INCURS A DEMAND CHARGE?
All non-residential customers that exceed 25 kW of electrical load. This includes both single-phase and three-phase service locations.
ARE DEMAND CHARGES UNIQUE TO HILCO ELECTRIC?
No. Demand charge billing is used consistently in the electric utility industry.
HOW CAN DEMAND CHARGES BE REDUCED?
To reduce demand charges, simply examine your operation.
- What energy-efficiency improvements can be made?
- Does all of the equipment need to be running at the same time?
- If not, what can be turned off while other equipment is running?
Often there is equipment that is operated infrequently. If this is the case, can some other equipment be turned off while this equipment is running? The result may be a significant savings in your monthly demand charge.
WHAT ELSE CAN BE DONE TO REDUCE DEMAND CHARGES?
Consult with HILCO Electric to assist in evaluating ways to improve the energy efficiency of your operation.
What is the Town, Franchise, or Other Tax on my bill?
As indicated below, most governmental entities may not impose sales tax on residential electric service, but there are exceptions. We have some cities in our territory that impose such a tax. There are links below that list the cities in Texas that impose the “Town Tax” and those that may do so in the future.
As for franchise tax, all cities in our territory impose a franchise tax that we must collect and pay to them. Any meter in the city limits must pay that tax. We do not keep any of these funds, whether they are sales tax or franchise tax. We simply collect for the governmental entities.
The “Other Tax” that you may see on your bill captures all the miscellaneous taxes that our billing system does not have a category for. An example is, in Hill County, there is an Emergency Service District that requires a tax to be collected. We do not keep any of these funds; they are simply collected and remitted to the governmental entities.
Local Sales and Use Tax on Residential Use of Gas and Electricity
Residential use of natural gas and electricity is exempt from most local sales and use taxes. Counties, transit authorities (MTA/CTD) and most special purpose districts (SPDs) cannot tax residential use of gas and electricity. Any city that adopted local sales tax effective Oct. 1, 1979, or later MAY NOT tax residential use of gas and electricity. See Attorney General Opinion No. H-1282 (1978).
However, certain municipalities that adopted local sales tax before Oct. 1, 1979, and two specific types of SPDs associated with those municipalities can opt to impose local tax on these purchases.
Any city that imposed sales tax before Oct. 1, 1979, could have retained the tax by ordinance on or before May 1, 1979, OR can reimpose the tax at any time. See Rule 3.334(l).
For more information, access:
A list of all cities that currently impose tax on residential use of natural gas and electricity. The effective date of the re-imposition of the tax is provided for those cities that did not retain the tax prior to May 1, 1979.
Any city not included on either list is not eligible to impose the tax.
What are Capital Credits?
The cooperative pays the bills for things like power generation, maintenance and operations. The money left over after those bills are paid each year is called a margin. Margins provide equity for the cooperative and are assigned to the members through capital credits.
HOW ARE CAPITAL CREDITS DETERMINED:
Capital credits represent the assigned share of the cooperative’s margins based on the amount of kilowatt hours used for that year.
I THOUGHT COOPERATIVES DIDN’T MAKE A PROFIT:
- We are required by our lending institution to meet certain financial requirements to show we are financially stable.
- Any margins are then assigned back to the members and paid in accordance to the bylaws.
WHAT IS THE DIFFERENCE BETWEEN ALLOCATED AND RETIRED CAPITAL CREDITS:
An allocation determines your share of the cooperative’s margins in a particular year. Margins are allocated in proportion to the revenue received from each member. This is referred to as your capital credit allocation. Once allocated, the assigned margins (or capital credits) are retained by the cooperative as a source of working capital used to maintain and/or improve its infrastructure. A retirement is the amount you receive back as a capital credit refund. Retirements are authorized by the Board of Directors after assessing the financial condition of the cooperative annually.
HOW CAN I INSURE MY UNPAID CAPITAL CREDITS WILL FOLLOW ME IF I LEAVE HILCO OR ARE PAID TO MY DESIGNATED BENEFICIARIES UPON MY PASSING?
Capital credit checks that are not cashed because they are mailed to an incorrect address or sent to deceased members may result in the funds being sent to the State of Texas as unclaimed funds. If you leave HILCO’s service territory, provide a valid forwarding address. This will be recorded, and any subsequent retirement checks will be mailed to you. You can update your address any time you move. The Cooperative encourages its members to designate beneficiaries for capital credits that may be paid after the member’s death. This can be done by completing our Capital Credit Beneficiary Assignment Form. This may be done in our offices or downloaded from our website and mailed in. You can find this form at www.hilco.coop under “Electric Services”>”Apply For Service.” The form is listed under “Downloadable Forms.” For more information in regards to this issue, please call (800)338-6425.
WHY DID I GET A CREDIT ON MY BILL INSTEAD OF A CHECK :
Capital credit checks for inactive accounts are mailed to the member’s last address on record. Capital credit refunds for active accounts are applied directly to the member’s bill.
What can I do to save money?
Each home and family is unique. The insulation level, how well the windows seal, whether the appliances are energy-efficient or not play into how much energy is consumed. The habits of the inhabitants also determine the usage. Things like how often laundry is washed and dried, whether window shades are kept closed, and the setting on the thermostat also contribute to the usage level. At HILCO Electric Cooperative, we understand the rising cost of electricity and provide information to our members on how they can save money. Whether a member uses the energy calculator off the www.hilco.coop website, reads the tips published each month in our Texas Co-op Power magazine, or requests a free energy-savings guidebook to be mailed, HILCO Electric Cooperative works to find ways to disseminate information to our members. Additionally, thanks to the capabilities of our TWACS metering system, we can provide members with daily meter readings. Many members find this information useful in assisting them with tracking when their usage increases. Another service the cooperative provides to the members free of charge is an extensive one-on-one home energy audit. After completing a short questionnaire, a representative will meet the member in their home an suggest ways to help lower their usage.
Who can be a member of the board of directors?
Any member meeting the qualifications as set by the HILCO Electric BYLAWS.
What is a Credentialed Director?
A person becomes a credentialed director on the first full day after all course work necessary to earn the NRECA Credentialed Cooperative Directors Certification is completed.
Is a board member compensated?
A board member is compensated for the time spent serving the cooperative. This includes, but is not limited to, monthly electric board meetings, Brazos Electric board meetings, training sessions required by the HILCO ByLaws or recommended by NRECA, special committee member meetings, or representing the cooperative at other cooperative-related functions as deemed necessary by the board of directors. Based on information provided by NRECA, or national affiliate, the directors of HILCO are compensated similarly to other board members serving cooperatives of HILCO's size.