Texas’ largest cooperative power producer filed for bankruptcy on Monday as the financial benefits a winter storm that plunged millions of people into darkness and spiked wholesale electricity prices.
Brazos Electric Power Cooperative – a generation and transmission company that serves cooperatives statewide, many of which serve poorer rural areas – said it had faced more than $ 2.1 billion in bills for purchased electricity soaring prices during the storm. The figure was more than three times what he paid in 2020.
The Chapter 11 bankruptcy filing was “necessary to protect its member co-ops and their members of over 1.5 million retailers from unaffordable electricity bills,” said Clifton Karnei, chief executive of Brazos.
Bankruptcy is the latest manifestation of a financial crisis unfolding in the Texas wholesale electricity market.
As the storm iced up nearly half of Texas’ power generation capacity, the Electric Reliability Council of Texas (Ercot), the grid operator, set electricity prices at their highest level of $ 9,000 per megawatt hour to attract as much production as possible onto the grid. A typical average price is only $ 25 per MWh.
The record $ 50 billion in electricity sold as a result put enormous financial pressure on companies – including retail suppliers and some producers – who were forced to buy at high prices. Ercot revealed on Friday that payments to market participants were $ 2.1 billion lower.
In one example, Griddy, a retail electricity supplier, was kicked out of the market by Ercot on Friday after failing to pay its bills.
Part of the $ 2.1 billion will be covered by foreclosure of collateral or $ 800 million taken from a fund backed by transportation contracts. The remainder of the deficit will be distributed among the members of the wholesale electricity market, Ercot said.
NRG Energy – one of the largest owners of power plants in Texas – said Monday it incorporated “Ercot’s default expected allocations” into its financial forecast for the year. However, its shares rebounded 15% to return to their pre-storm level as the company appeared to escape financial damage suffered by Brazos and other listed producers such as Vistra and Exelon.
“The stress we’ve all seen in the system. . . already gives us lessons learned on how we should think about counterparty performance, counterparty risk, ”said Mauricio Gutierrez, Managing Director of NRG.
Brazos’ bankruptcy is likely to increase political pressure on state officials and regulators to provide financial assistance to battered power companies.
Some retail electricity providers facing high bills have warned regulators that if they do not retroactively reduce wholesale electricity prices, much of their market could be wiped out. According to them, this would reduce customer choice, undermining a key objective of the state’s efforts to deregulate the electricity sector.
In Monday’s bankruptcy filing, Karnei said the “catastrophic failures” associated with the winter storm were to blame. “At the start of February 2021, the idea that a financially stable cooperative like Brazos Electric would end bankruptcy preparation month was unfathomable,” he said.
Brazos had an A credit rating from S&P Global last week, after being placed on “credit watch with negative implications” alongside a number of other Texas utilities and co-ops that had potential price exposure. extraordinarily high electricity.
Newsletter twice a week
Energy is the world’s essential business and Energy Source is its newsletter. Every Tuesday and Thursday, straight to your inbox, Energy Source brings you essential news, cutting-edge analysis and insider information. register here.