US Households Expected to Pay Higher Utility Bills for Decades

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.

Most utility debt has been weather-related as these companies try to strengthen their power grids against fierce storms and harsh conditions. Securitizations or recovery bonds have increased this year, owing primarily to weather-related events in Texas, Oklahoma, and Arkansas in February 2021.

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.

According to Joseph Fichera, CEO of Saber Partners, recovery bonds are issued by utilities to finance specific costs (approved by the state legislature and the regulators) incurred as a result of weather-related calamities like hurricanes. They’ve also been used for other costs like rising fuel costs and coal plant retirements. Fichera’s firm provides advisory services to regulators and utilities on securitization deals.

“Financing early coal plant retirements will be a focus in the future,” Fichera told The Epoch Times.

The maximum maturity of these bonds used to be between 10 and 15 years; however, they’re now targeting 25 to nearly 30 years, he said.

“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.

According to Fichera, utility securitizations provide benefits and are a most cost-effective way to raise funding for utility costs. However, he said, the recent utility recovery bond issues have much higher interest rates than other top-quality, similarly rated corporate bonds, which is unfair to customers.

“Unfortunately, Wall Street underwriters seem to be taking advantage of electricity customers and regulators. These bonds are being priced like riskier A-or BBB-rated securities rather than the pristine AAA securities they are,” he said. AAA-rated bonds are deemed the least likely to default and usually have very low interest rates.

The National Energy Assistance Directors Association (NEADA) reported 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 increased from $403 to $792.

“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.”