EnergyTexas’ Largest Electricity Cooperative Files for Bankruptcy After $1.8 Billion Bill Dispute with ERCOT

The massive bill originates from the blackouts two weeks ago during which wholesale electricity prices ballooned to their $9,000 megawatt-hour (MWh) cap. The Brazos co-op serves over 660,000 consumers across Texas and has existed since 1941.

The cooperative provides nearly 4,000 MW of generation across 68 counties in Texas.

Electric cooperatives are founded to supply power to areas that lack a large, densely populated customer base that can support multiple private suppliers.

Brazos is overseen by representatives of the various micro-suppliers falling within its jurisdiction.

Within Brazos’ jurisdiction are 16 member cooperatives within the ERCOT marketplace and one, South Plains Electric in Lubbock, lies in the Southwest Power Pool.

The filing was signed by Clifton Karnei, Brazos’ executive vice president and general manager.

In his personal statement filed with the court, Karnei stated, “As the month of February 2021 began, the notion that a financially stable cooperative such as Brazos Electric would end the month preparing for bankruptcy was unfathomable.”

“Yet that changed as a direct result of the catastrophic failures that accompanied the winter storm that blanketed the state of Texas on or about February 13, 2021 and maintained its grip of historically sub-freezing temperatures for days.”

Karnei’s diagnosis is morbid, stating, “Simply put, Brazos Electric suddenly finds itself caught in a liquidity trap that it cannot solve with its current balance sheet.”

“Brazos Electric will not foist this catastrophic ‘black swan’ financial event,” Karnei stated, metaphorically falling on its sword, “onto its members and their consumers, and commenced this bankruptcy to maintain the stability and integrity of its entire electric cooperative system.”

Across the winter event, Karnei stated the ERCOT wholesale market incurred $55 billion in costs over the week-long period — equal to four years of costs normally.

Brazos is seeking an opportunity to restructure after the bankruptcy declaration.

Karnei was on the ERCOT board but resigned last week before this bankruptcy became public.

Operating on the ERCOT marketplace is prohibited during insolvency, so Brazos’ customers will have to find other power suppliers for likely a higher premium.

The exorbitant costs rippling throughout Texas’ power industry stem from the blackouts and were exacerbated by an order by the Public Utility Commission. That order required ERCOT to adjust its wholesale pricing equation to “accurately reflect” the market’s scarcity.

In effect, this caused the wholesale price to increase from $1,200 MWh to its $9,000 MWh cap.

Some customers received massive utility bills due to their wholesale-indexed plans with providers like Griddy. But the cost elsewhere will be shouldered by the suppliers whose customers are on fixed-rate plans.

The outfits that will struggle the most under these costs are the nonprofit cooperatives like Brazos.

Legislative hearings on the blackout’s cause and surrounding context began last week with ERCOT and the PUC absorbing the brunt of the criticism. Multiple legislators and Lt. Governor Dan Patrick have all called for the resignation of PUC Chair DeAnn Walker, and Patrick also called for ERCOT CEO Bill Magness’s resignation.

Brazos’ bankruptcy is the first domino to fall in the wake of the Texas freeze, and it likely will not be the last.