The utility company, which serves 16 distribution member co-ops that cater to more than 1.5 million Texans, said it had "no choice" but to file for bankruptcy after accumulating more than $2.1 billion in bills stemming from the Lone Star state's winter storm last month.
“Simply put, Brazos Electric suddenly finds itself caught in a liquidity trap that it cannot solve with its current balance sheet,” Clifton Karnei, the company’s executive vice president and general manager, said in a sworn declaration on Monday. "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 cooperative system."
After power plants were forced to shut down due to the inclement weather conditions, the Electric Reliability Council of Texas (ERCOT) and the Public Utility Commission of Texas drove the price of wholesale energy produced in the state's grid to $9,000 per megawatt hour in an effort to prevent the system's collapse. In comparison, the price was $20.79 per megawatt hour in the weeks before the storm hit, according to ERCOT records.
The pricing increase was put in place following ERCOT's Level 3 Energy Emergency Alert on Feb. 15 to ensure regional utilities were cutting the appropriate amount of power, which resulted in blackouts for 4.1 million Texans. Brazo's collateral surged to $1.6 billion in just four days, more than twenty times the average before last month’s extreme weather event. Settlement charges and fees to ERCOT also piled up.
"The consequences of these prices were devastating," Karnei said.
Brazos Electric’s coverage area contains 68 counties spread between Houston and the Texas Panhandle, according to the cooperative’s website.
Karnei, who also sat on ERCOT'S board until resigning last week, said the notion that a financially stable cooperative like Brazos would face bankruptcy was “unfathomable.”
"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," the company said in a press release. "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."
The filing includes a list of entities who Brazos owes the largest amounts of money. ERCOT is the cooperative’s largest debt, coming in at over $1.8 billion. The cooperative’s second-largest debt is to Bank of America, which is for a line of credit totaling $479.9 million. The debt to ERCOT is listed in the filing as "disputed."
Brazos' total power costs for all of 2020 totaled $774 million.
The filing comes after another Texas utility company, Griddy Energy LLC, is facing a $1 billion class action lawsuit accusing the company of "unlawful price gouging." In addition, the lawsuit accuses Griddy of violations of the Texas Deceptive Trade Practices Act and seeks an injunction to prevent Griddy from billing and collecting payment for excessive prices and to assure the forgiving of any late or unpaid bills from affected customers.
ERCOT revoked the company’s operating rights because it failed to make payments. Griddy said on its website that shutting down was “not a choice we made,” noting ERCOT has transferred its customers to other power providers.
"We have always been transparent and customer-centric at every step," Griddy said. "We wanted to continue the fight for our members to get relief and that hasn’t changed."
A spokesperson for Griddy told FOX Business that while they understand their customers' frustration, the company does not have "any control over the cost of electricity" and receives the same fixed membership fee of $9.99 per month regardless of whether wholesale electricity prices are high or low.
"The extreme rates charged to our customers from Feb. 15 to Feb. 19 are the direct result of non-market prices ordered by the Public Utility Commission of Texas (PUCT)," the spokesperson added. "The lawsuit is meritless and we plan to vigorously defend against it."
The House Oversight Subcommittee on Environment has launched an investigation into ERCOT's actions related to the storm.
California Democratic Rep. Ro Khanna has sent a letter to ERCOT CEO Bill Magness requesting documets regarding the grid operator's preparedness for extreme weather events as well as communications related to decisions on implementing rolling blackouts and the disruption of electric supply in the storm by March 17.
“The risk of increased extreme winter weather events in the United States underscores the need for adequate preparation,” Khanna wrote. “ERCOT and the State of Texas are well-aware of the weather predictions, yet you have failed to prepare adequately for them.”
Khanna told Magness that the power outages disproportionately impacted low-income communities and communities of color, and highlighted that extreme weather events are part of climate change.
An ERCOT spokesperson told FOX Business that the letter has been received and is currently under review.
AccuWeather estimates that the total economic losses caused by the historic storm could be between $45 and $50 billion when factoring in property and infrastructure damage, lost wages, business and crop losses, and medical costs.