Last month’s severe cold weather across the south, particularly Texas, while having immediate impacts on millions of Texas residents, are now beginning to show additional impacts to the energy industry. Millions of Texas residents suffered widespread, lasting power outages, burst water pipes, and other weather-related impacts from the icy weather. The impacts of the severe weather affected energy providers as well, who struggled to get electricity to their customers. Texas’ largest power generation and transmission cooperative, Brazos Electric Power Cooperative, Inc. (“Brazos”) filed for Chapter 11 bankruptcy Monday after it received an approximate $2.1 billion bill from the Electric Reliability Council of Texas (“ERCOT”) for seven (7) days of power during the deep freeze. This amount far exceeds the costs charged to Brazos’ members for all of 2020, which came in at approximately $774 million. Brazos is one of multiple providers facing billions in charges from the severe cold weather. When these providers could not provide their own generated power to the grid, they were required to buy replacement power – at extremely high rates. These energy rates were about 500 times the usual rate, topping out at the $9,000/MWh established by ERCOT.
And a protocol called “uplift” allows ERCOT to spread the cost of defaulted obligations among other providers. With so many electric providers unable to supply power to the grid during last month’s freeze, it appears ERCOT may use the “uplift” protocol to send invoices to other electric providers to recover unpaid charges for grid power. The City of Denton has already sued ERCOT and others regarding this practice, which could cost the City millions. Other providers and analysts warn that the storm-related charges could exceed many providers’ available liquidity, making it likely Brazos will not be the only Texas provider seeking bankruptcy protection in the near future.
Brazos’ bankruptcy case is docketed before the Honorable David R. Jones (In re Brazos Electric Power Cooperative, Inc., No. 21-30725) in the United States Bankruptcy Court for the Southern District of Texas. The City of Denton’s suit against ERCOT is docketed in the District Court for the County of Denton, State of Texas, Cause No. 21-1421-16.