Aside from its power bills, the cooperative has more than US$2 billion of debt outstanding, spread across US$1.56 billion of secured notes and about US$480 million under a credit line administered by Bank of America Corp.
NEW YORK/HONG KONG/LONDON (March 1): The largest power generation and transmission cooperative in Texas has filed for bankruptcy in the wake of power outages that caused an energy crisis during the winter freeze last month.
Brazos Electric Power Cooperative filed for Chapter 11 in Texas after racking up an estimated US$2.1 billion in charges over seven days of the freeze. Last year, it cost cooperative members US$774 million for power for all of 2020.
The magnitude of the charges "could not have been reasonably anticipated or modelled" and far exceeds Brazos highest liquidity levels in recent years, executive vice president Clifton Karnei said in a bankruptcy court declaration. The cooperative on Feb 25 told state grid operator the Electric Reliability Council of Texas that it would not pay the US$2.1 billion sum, and Karnei resigned from Ercot's board of directors, court papers showed.
Brazos had "no choice" but to file for bankruptcy, Karnei said. Chapter 11 protection lets Brazos keep operating while it works out a plan to repay creditors. The cooperative listed assets and liabilities of as much as US$10 billion each.
"Brazos Electric suddenly finds itself caught in a liquidity trap that it cannot solve with its current balance sheet," Karnei wrote in the declaration.
Aside from its power bills, the cooperative has more than US$2 billion of debt outstanding, spread across US$1.56 billion of secured notes and about US$480 million under a credit line administered by Bank of America Corp, court papers showed. Brazos had "A+" credit grade from Fitch Ratings and an "A" from S&P Global Ratings prior to the bankruptcy.
Brazos, a member-owned power provider, serves customers across 68 Texas counties, stretching from just north of Houston to near the Texas panhandle, court papers showed.
The bankruptcy is likely to be one of many after four million homes and businesses went without heat, light, and water during the deep winter freeze last month, causing as much as US$129 billion in economic losses. The state's broader market set a record for the most expensive week of power in US history. The impact on individual companies is only starting to emerge, with some racking up huge losses while oil and gas producers saw their output halted.
Companies that failed to produce electricity were forced to buy power as prices soared. Ercot said it is US$1.3 billion short of what it needs to pay generators for what was produced. This puts huge financial pressure on utilities that managed to keep producing power, as well as those that failed.
Ercot has stopped payments to some utilities as it tries to manage defaults. If the grid operator fails to completely cover defaults, the resulting costs would be passed onto all market participants.
Griddy Energy LLC, a Texas retail electricity provider that came under fire after its customers received exorbitant power bills during the energy crisis last week, was barred from participating in the state's power market on Feb 26.
The supplier charges electricity based on real-time prices in wholesale markets, therefore passing the costs straight on to consumers. Ercot revoked Griddy's rights to conduct activity in the state's electricity market due to non-payment, according to a market notice seen by Bloomberg.
Fitch Ratings put all retail and wholesale electric utilities operating within Ercot on rating watch negative last month, citing concerns regarding funding requirements and liquidity in the near term.