Disputed costs from the recent snow and ice storms have seen the largest and oldest electric co-op in Texas file for bankruptcy.
Brazos Electric Power Cooperative, which serves 16 distribution member co-ops that supply more than 1.5 million Texans, filed for bankruptcy protection in Houston on Monday, in relation to a disputed US$1.8bn debt to the state’s grid operator.
Formed in 1941, its service territory extends across 68 Texas counties from the Panhandle to Houston.
Its financial crisis came after the storms knocked out half the state’s power plants, sparking a shortage that saw electricity wholesale prices peak at $9,000 per megawatt-hour – compared with pre-storm prices of less than $50 per megawatt hour. The higher prices are meant to incentivise power generation but with no capacity to do so, 4.3 million people were left without electricity.
Grid operator ERCOT (the Electric Reliability Council of Texas) also ramped up service fees over four days during the storm, to 500 times the usual rate.
This has left dozens of electricity providers sharing billions of dollars in blackout charges. ERCOT has reported $2.46bn in unpaid bills.
Fitch Ratings has warned of potential downgrades to all Texas municipal power firms that use the grid and said storm costs could exceed their immediately available liquidity.
In a press release, Brazos said: “Before the severe cold weather that blanketed Texas with sub-freezing temperatures February 13-19, Brazos Electric was in all respects a financially robust, stable company with a clear vision for its future and a strong “A” to “A+” credit rating.
“As a result of the catastrophic failures due to the storm, Brazos Electric was presented with excessively high invoices by ERCOT for collateral and for purported cost of electric service, payment of which was required within days.
“As a co-operative whose costs are passed through to its members … Brazos Electric determined that it cannot and will not foist this catastrophic financial event on its members and those consumers.”
It says it will carry out a financial restructure and in the meantime remained committed to delivering its services and assisting those affected by the severe weather in their efforts to rebuild.
The co-op also pledged to support “the orderly, fair and expeditious treatment and satisfaction of its liabilities” resulting rom the crisis.
“Let me emphasise that this action by Brazos Electric was necessary to protect its member co-operatives and their more than 1.5 million retail members from unaffordable electric bills as we continue to provide electric service throughout the court-supervised process,” said vice president and general manager Clifton Karnei.
“We will prioritise what matters most to our member co-operatives and their retail members as we, and they, work to return to normalcy. We expect this court-supervised process will provide us with the protections and mechanism to protect and preserve our assets and operations, and satisfy obligations to our creditors.”
The filing also includes several “first day” customary operational motions Brazos Electric filed with the court in support of its financial restructuring – including requests of authorsations to continue paying employee wages and benefits and certain critical vendors.
Brazos said it will pay all obligations under normal terms of business for goods and services provided on the filing date of 1 March 2021 and thereafter.
In his submission to the federal court, Mr Karnei said: “Simply put, Brazos Electric suddenly finds itself caught in a liquidity trap that it cannot solve with its current balance sheet. Brazos Electric will not foist this catastrophic ‘black swan’ financial event onto its members and their consumers, and commenced this bankruptcy to maintain the stability and integrity of its entire electric co-operative system.”
The co-op says ERCOT’s $2.1bn invoice is nearly three times its power costs for all of 2020 and has issued a notice of force majeure to avoid payment.
The power crisis has prompted the resignation of the chair of Texas’ Public Utility Commission, DeAnn Walker, while ERCOT itself has been sued by the city of Denton to stop it levying further charges.
The state attorney general Ken Paxton has issued Civil Investigative Demands (CIDs) to ERCOT and other power companies regarding the crisis.
ERCOT has been contacted for comment.