ERCOT Seeks to Restructure Debt to Create Stable System Administration Fee

ERCOT has sought authorization at the Public Utility Commission of Texas to restructure its debt for, among other reasons, to stabilize the System Administration Fee (40291).

ERCOT's proposal would not add any new debt.

"The debt restructuring will yield several improvements when compared to ERCOT's current debt portfolio," ERCOT said, listing the advantages of the proposed debt restructuring as:

• Creating the conditions for stable System Administration Fee in 2013 and future years;

• Promoting intergenerational equity among entities paying ERCOT fees by putting long-lived assets on a longer-term repayment schedule;

• Locking in historically low interest rates on ERCOT's long-lived physical assets (namely, Taylor and Bastrop data and control center facilities), thus reducing overall costs to ERCOT; and

• Reducing complexity of the ERCOT debt structure by exchanging nine existing debt facilities for three facilities going forward

ERCOT anticipates that if the debt restructuring is approved, ERCOT will be in a position to propose maintaining the current System Administration Fee of $0.4171 per MWh as part of its 2013 budget.

"If the debt restructuring proposal is not approved, ERCOT expects to propose an increase in the fee similar to the projection for 2013 presented when the Commission approved ERCOT's 2012 budget," ERCOT said.

ERCOT said that a fixed rate portion of the proposed debt restructuring, "enables ERCOT to enhance the stability and fairness of ERCOT's fees, by matching debt repayment to the useful lives of ERCOT's Taylor and Bastrop facilities.

"The new Taylor and Bastrop data and control center facilities are classic 'bricks and mortar' assets with relatively long depreciable lives. Just as ERCOT pays for its short-lived assets (such as computer software or hardware) based on their established useful lives, it makes sense for ERCOT to finance its longer-lived assets on a longer-term basis," ERCOT said.

"This is a sound approach from a financial perspective, but also is fairer when considered in terms of the SAF rate design: today's ratepayers funding the SAF should not be required to shoulder a disproportionate share of the costs of the Taylor and Bastrop assets, since those assets will benefit ratepayers in the ERCOT region for many years in the future. Moreover, the longer-term repayment of the cost of the Taylor and Bastrop facilities enables ERCOT to pay debt service on a set, predictable schedule that eliminates the need for spikes in the SAF to cover the extraordinary costs of the new facilities over a short repayment period. ERCOT expects this will permit it to maintain the current SAF without change in 2013, and should facilitate stable fee levels for several years to come," ERCOT said.