(Bloomberg)– The biggest power generation and transmission cooperative in Texas declared bankruptcy in the wake of power outages that caused an energy crisis throughout the winter season freeze last month.
Brazos Electric Power Cooperative declared Chapter 11 in Texas after racking up an approximated $2.1 billion in charges over seven days of the freeze. Last year, it cost cooperative members $774 million for power for all of 2020.
The magnitude of the charges “could not have actually been fairly prepared for or modeled” and far goes beyond Brazos highest liquidity levels over the last few years, Executive Vice President Clifton Karnei stated in a personal bankruptcy court declaration. The cooperative on Feb. 25 told state grid operator the Electric Reliability Council of Texas that it wouldn’t pay the $2.1 billion amount, and Karnei resigned from Ercot’s board of directors, court documents show.
Find out more: Texas’s Power Market Is $1.3 Billion Short After Energy Crisis
Brazos had “no option” however to declare personal bankruptcy, Karnei stated. Chapter 11 security lets Brazos keep running while it works out a strategy to pay back creditors. The cooperative listed properties and liabilities of as much as $10 billion each.
” Brazos Electric all of a sudden discovers itself captured in a liquidity trap that it can not solve with its existing balance sheet,” Karnei composed in the statement.
Aside from its power expenses, the cooperative has more than $2 billion of debt outstanding, spread out across $1.56 billion of secured notes and about $480 million under a line of credit administered by Bank of America Corp., court papers show. Brazos had A+ credit grade from Fitch Rankings and an A from S&P Global Scores prior to the insolvency.
Brazos, a member-owned power provider serves consumers across 68 Texas counties, extending from just north of Houston to near the Texas panhandle, court documents show.
The bankruptcy is likely to be one of numerous after four million homes and companies went without heat, light and water throughout the deep winter freeze last month, triggering as much as $129 billion in economic losses. The state’s more comprehensive market set a record for the most expensive week of power in U.S. history. The impact on specific business is just beginning to emerge, with some racking up substantial losses while oil and gas manufacturers saw their output halted.
Companies that failed to produce electricity were forced to buy power as prices skyrocketed. Ercot says it’s $1.3 billion short of what it needs to pay generators for what was produced. This puts substantial financial pressure on energies that handled to keep producing power, as well as those that failed.
Ercot has stopped payments to some utilities as it tries to handle defaults. If the grid operator stops working to entirely cover defaults, the resulting expenses would be passed onto all market participants.
Griddy Energy LLC, a Texas retail electricity supplier that came under fire after its customers received inflated power bills during the energy crisis recently, was disallowed from taking part in the state’s power market on Feb. 26.
The supplier charges electricity based on real-time costs in wholesale markets, for that reason passing the expenses straight on to consumers. Ercot revoked Griddy’s rights to perform activity in the state’s electrical power market due to nonpayment, according to a market notification seen by Bloomberg.
Fitch Rankings put all retail and wholesale electric energies operating within Ercot on ranking watch unfavorable last month, pointing out issues concerning funding requirements and liquidity in the near term.
The case is Brazos Electric Power Cooperative Inc., 21-30725, U.S. Personal Bankruptcy Court for the Southern District of Texas (Houston).
( Updates with monetary information beginning in paragraph three.).
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