Texas' largest power cooperative filed for bankruptcy protection in federal court in Houston on Monday, March 1, citing a disputed $ 1.8 billion debt to the state's grid operator.
Court documents show that Brazos Electric Power Cooperative, which supplies electricity to more than 660,000 consumers across the state, filed for Chapter 11 in the U.S. Bankruptcy Court for the Southern District of Texas. The company claimed that it could not pay a $1.8 billion bill from the Electric Reliability Council of Texas (ERCOT) stemming from a severe cold snap last month.
Brazos is just one of dozens of providers facing enormous charges caused by last month's severe cold snap. The fallout threatens both utilities and power marketers, which are collectively facing billions of dollars in blackout-related charges.
Brazos caught in liquidity trap
Half of Texas' power plants were knocked out by unusually frigid temperatures in mid-February, leaving millions of people without heat or light for days. At the same time, Brazos and other providers committed to providing power to the grid were required to buy replacement power at high rates to cover other firms' unpaid fees.
ERCOT on Monday said that $2.46 million in bills went unpaid, underscoring the financial stress on utilities and power marketers. ERCOT itself acted as a clearinghouse, collecting from power buyers and then paying those who generated it.
The squeeze was triggered when ERCOT pushed up spot-market rates to $9,000 per megawatt hour (mwh) over more than four days. At the same time, it also levied huge fees – up to 500 times the usual rate – for services.
Brazos executive Clifton Karnie told the federal court that Brazos found itself "caught in a liquidity trap that it cannot solve with its current balance sheet." Karnie previously sat on ERCOT's board of directors until last week.
According to Brazos, ERCOT's $2.1 billion invoice was nearly three times the cooperative's power costs for all of 2020. According to Karnie, this forced the company to respond by issuing a notice of force majeure, rejecting the bills.
Texas power companies in trouble
Brazos' bankruptcy filing highlighted the troubles faced by Texas' power providers following colder than normal temperatures this past February.
The municipal power sector is in a real crisis,” said Maulin Patani, founder of independent power marketer Volt Electricity Provider LP, which is not a member of the Brazos cooperative. Talking to Reuters, Patani warned that further defaults could occur should ERCOT not suspend the service charges.
ERCOT Vice-President of Commercial Operations Kenan Ogelman has conceded as much, saying that "defaults are possible, and some have already happened."
Prior to Brazos filing for bankruptcy, energy producer Just Energy saw its shares crash by more than 21 percent last week after the Canadian company released a statement about the steep losses it incurred last month in Texas.
Just Energy also pointed to ERCOT's high prices during the February freeze.
"The sustained high prices from February 13, 2021 through February 19, 2021, during which real-time market prices were artificially set at USD $9,000/MWh for much of the week, it is likely that the Weather Event has resulted in a substantial negative financial impact to the Company," Just Energy said in a statement. "Based on current information available to the company as of the time of this press release, the company estimates that the financial impact of the Weather Event on the company could be a loss of approximately USD $250 million (approximately CAD $315 million), but the financial impact could change as additional information becomes available to the company."
Meanwhile, debt analyst Fitch Ratings has warned of potential downgrades to all Texas municipal power firms that use the state's grid. It stated last week that costs from the storm "could exceed the liquidity immediately available to these issuers."
Others were taking steps to prevent companies from defaulting by having to pay ERCOT's bills. Last week, the city of Denton in the Dallas-Fort Worth metro area sued ERCOT in state court to prevent it from charging the city for bills uncollected from other grid users.
As part of their investigation into the blackout, the office of the Texas attorney general has called on ERCOT and others to provide documents on the outages and pricing, saying that they mismanaged the crisis. (Related: Federal regulators plan to investigate Texas power outages.)
Followe Disaster.news for more on the fallout of Texas' power crisis.
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