In the wake of extreme weather that threw Texas utilities into chaos last month, some municipalities are having to sell long-term bonds just to pay for one week’s power bill.
It’s not just small towns scrambling for cash. San Antonio is among the cities planning to sell long-term bonds to pay down it’s new debt.
The municipal-bond market generally shrugs off natural disasters because they are usually offset by an influx of federal aid. But the electricity meltdown in the Lone Star state has left cities and local utilities on the hook for massive power bills.
Bay City, a small community of less than 20,000 people, says its tab for that one week dwarfs what it spends in an entire year. Denton’s utility spent $200 million over four days buying power. San Antonio’s utility plans to sell long-term bonds to spread out the $1 billion in charges it incurred.
While municipal-bond holders have been paying more attention to climate change in recent years, the Texas freeze is the latest in a series of disasters that have forced investors to rethink the way they evaluate bond portfolios that hold securities that don’t mature for decades.
“The Texas freeze revealed issues that probably most people never thought of,” said Chris Hamel, a senior fellow at Municipal Market Analytics and former head of municipal finance at RBC Capital Markets.
Denton’s utility had to issue $100 million of commercial paper notes to cover its tab, while San Antonio’s power agency has said it will sell long-term bonds to spread out the $670 million of natural gas charges and $365 million of power charges. Corpus Christi issued a $35 million bond through private placement to pay for power costs that were 27 times higher than average.