How Vistra, Atmos Energy and Energy Transfer are moving forward from Texas’ epic winter storm
Last year’s brutal winter storm took an awful human toll, including 246 deaths in Texas. It also had major financial effects, especially for three major companies in the Dallas area.
Vistra, the state’s largest power generator, lost $2.5 billion related to the storm and has been clawing back ever since. It borrowed a few billion dollars and took steps to improve liquidity, including cutting costs with a goal of saving $500 million.
Atmos Energy, the nation’s largest natural-gas-only utility, took a $2 billion hit and credit downgrade. Unlike Vistra, Atmos is regulated, meaning it can pass along to customers all fuel costs — expenses that soared during the week of the storm.
Atmos is relying on a state financing tool, known as securitization, to spread out the pain for customers. Paying off the debt could add $3.50 to $5.50 to monthly gas bills, assuming a 10- to 15-year recovery period, Atmos said in November.
Then there’s Energy Transfer LP, a leading gas pipeline company that was among the biggest winners last year. It earned an extra $2.4 billion related to the storm, which was used to pay down debt.
Many blamed Energy Transfer for huge increases in spot market prices for gas, and CPS Energy in San Antonio sued the company, alleging the charges were unlawful and unconscionable. But Energy Transfer attributed its gains primarily to providing enormous amounts of natural gas, including from its storage facilities and sources beyond Texas.
Its preparation was crucial to keeping the gas flowing to electric generators during the crisis, the company said, and government figures show that a record amount of natural gas was taken from storage in the region during the week of the storm.
All three companies are publicly traded, and their stock prices fell last winter, sometimes briefly, sometimes longer. At one point around the storm, Vistra shares had fallen over 20%, and Energy Transfer and Atmos shares were down about 4%. On Thursday, Vistra stock was trading slightly above its pre-storm price while Atmos was up 18% and Energy Transfer was up 36%.
Vistra’s expenses soared during the storm. When its generating plants failed, either because they faltered from cold weather or from a lack of natural gas, Vistra had to buy electricity and natural gas on the open market — at a time when prices were soaring.
Vistra spent $4.1 billion on fuel, purchased power and delivery fees for its Texas operation for the nine months ended in September. That’s roughly four times higher than previous years and led to a $2.5 billion net loss in Texas.
Curt Morgan, CEO of Vistra, said executives realized the company would take a big financial hit.
“Our job became a humanitarian job,” Morgan said at a panel discussion in Austin in May 2021. “And we bought as much gas as we could at any price we could get. And we said we’d figure out the numbers at the end of the thing — and it didn’t work out for us.”
Vistra absorbed the high costs, which he said would have been $300 to $350 per customer, because it operates in the competitive generation market. That means it can’t simply pass along increases.
But Vistra is getting help from the state: It expects to get $500 million from the securitization program, which will help pay down debt from last year.
“That’s a huge shot in the arm,” Morgan said at an investor conference in September.
Vistra invested about $50 million in winterization efforts last year and plans to spend $30 million more in 2022. It put up wind breaks around plants, installed heat tracing lines along pipes and strengthened insulation. It adjusted coal handling because those supplies froze last year.
Vistra also restored and improved dual-fuel capability and storage at six of its 14 gas plants. They could run on diesel fuel for about a week if necessary.
We’re “making sure that we’re completely weatherized as a company,” Morgan said.
Energy Transfer said that it had ample time to prepare for the storm, and that its Texas pipelines, processing plants and compressor stations “performed extremely well.”
Natural gas sales in the first quarter of 2021 topped $5.1 billion, almost nine times higher than the same quarter the year before. That drove a profit of $2.4 billion from the storm, after including about $100 million in weather-related expenses, executives said in May.
Energy Transfer has long been winterizing its equipment and said it spent $1.5 billion on maintenance over the past three years with about half of that in Texas. Since 2014, it’s been developing a dry gas fuel system in West Texas to power compressors while preventing freezing.
The company tapped its massive natural gas storage in Texas, and also bought or transported natural gas from out of state. In a quarterly filing, Energy Transfer said its storage margin increased by $1.5 billion as a result of gas withdrawals during the storm.
The company’s transportation service and, more important, its storage capacity, have been undervalued for years, co-CEO Marshall (Mackie) McCrea told analysts in May. The storm changed that, and the impact went beyond lifting the stock price.
“We have some existing customers that have asked to double their storage capacity,” McCrea said in May. “They’re asking for more withdrawal capability.”
In mid-February last year, 156 billion cubic feet of natural gas was withdrawn from storage in the south-central region that includes Texas, the U.S. Energy Information Administration reported. That was a record high for the area.
An industry leader asked the company to show the media how it changed its infrastructure in the Permian after the storm. But Energy Transfer doesn’t have a before-and-after story.
“We’re not doing something differently now because our system held up well,” said spokeswoman Vicki Granado.
Atmos Energy borrowed $2.2 billion last March to cover the costs of natural gas during the storm, and the financial impact was most visible on its cash flow. In previous fiscal years, operations threw off about $1 billion annually, but cash flow was a negative $1 billion for the year ended in September.
Atmos will use $2 billion in securitization from a state financing authority to pay off its short-term borrowing from last year. Customers will gradually pay down the expense, and their bills are already rising.
Atmos’ average monthly bill for residential customers jumped to $58 in 2021, up from $48 the year before, according to a company investor presentation in November. The same slide projects the average bill climbing to $75 by 2026, and some analysts warned about customers struggling with higher bills.
But J.P. Morgan analysts were bullish, saying the securitization funds would arrive within 180 days of final regulatory approval. That’s “a positive catalyst,” they wrote this month, as Atmos “returns to business-as-usual operations.”
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