Brazos Electric Declares Bankruptcy Due To ERCOT Billing

Brazos Electric Declares Bankruptcy Due To ERCOT Billing

Brazos Electric Declares Bankruptcy Due To ERCOT Billing

Brazos Electric Power Cooperative, the oldest power cooperative in Texas, declared bankruptcy this week.

““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,” the company’s general manager Clifton Karnei wrote in a 46-page declaration. “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.””

Brazos Electric had a clean bill of financial health, and in fact has been financially solvent for the entirety of it’s 80 year history. Until this February that is. So, what happened?

As the world knows, Texas got slammed with a massive polar vortex of an ice and snow storm. It was a storm that cratered the power grid, leaving millions without power, destroying homes and businesses, and eventually having nearly 14 million Texans having to boil water for days. It also led to, as Lisa wrote here, five ERCOT board members resigning while likely hoping they don’t get sued for how they mishandled everything leading up to and in response to the storm. 

Griddy, an electric wholesaler has its own problems. 

One of Griddy’s customers filed a $1 billion class action lawsuit in response to receiving a $9,000 electric bill just days after the storm hit. Others who sourced electricity from Griddy were hit with bills as high as $17,000

Now, Texas Attorney General Ken Paxton is ALSO suing Griddy

“Griddy passed skyrocketing energy costs to customers with little to no warning, resulting in consumers paying hundreds or even thousands of dollars each day for electricity,” the news release said.”

Just a day or so before Brazos Electric, which services over 1.5 million homes and businesses, declared bankruptcy, Clifton Karnei resigned from the ERCOT board. Yes, Karnei lives in Texas. However, it’s the timing of his resignation and the declaration of bankruptcy that is of interest. 

If Brazos Energy Cooperative was in sound financial health, why the bankruptcy now? A key culprit is…ERCOT. 

“Brazos said that it received excessively high invoices from the Electric Reliability Council of Texas for collateral and for purported cost of electric service. The invoices were required to be paid within days.”

As a cooperative, those bills would’ve been passed to the consumers. Brazos, under Karnei’s leadership, decided not to do that, which led to the declaration of bankruptcy. The dollar amount of the bills that ERCOT dropped into Brazos lap? $2.1 Billion. Yes, you read that correctly

“When regulators ordered market prices to go as high as $9,000 per megawatt-hour, the collateral Brazos was required to post ballooned to $1.6 billion in just four days, more than twenty times the average before last month’s extreme weather event. Additional settlement charges and fees to Ercot also piled up.

Mr. Karnei said the invoice from Ercot was nearly three times as much as Brazos spent buying power for its cooperative participants in all of 2020.”

ERCOT, already under fire for their mishandling of this crisis, decided to dig a deeper hole by slamming the power providers around the state with jacked up billing. ERCOT required the invoices to be paid in a matter of days. This is the SAME ERCOT who has known since 2011 that the power grid needed to be winterized! The Federal Energy Regulatory Commission sent an official notice to Texas, ERCOT, and the the power generators about the issue. They were essentially told to get it done…and they didn’t. 

It’s good that Brazos doesn’t want to pass along an outrageous $2 billion ERCOT bill to their customers. However, as noted in the video above and elsewhere, ALL the power operators in Texas bear some blame for the Texas Ice storm debacle. They KNEW the grid needed to be winterized. They KNEW ice storms (albeit not as huge as this one) do hit the state and cause issues. 

But instead of planning for the future by winterizing the grid, business as usual was their modus operandi. Millions of people suffered as a result. 

Feature Photo Credit: burning light bulb by comfreak via Pixabay, cropped and modified

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  • Quentin Q Quill says:

    But I thought Texas was exceptional. With a Republican governor and letting the free market taking care of things none of this should have happened. What went wrong? Shouldn’t we always let the market decide?

    • GWB says:

      The market wasn’t the biggest player in this. ERCOT and the feds (who subsidized unreliable energy sources) were larger.

      BTW, the market responded – scarcity drove prices WAY up. Some people got sucker-punched by that. Primarily because they’ve been taught to ignore risk calculations and standard economics.

      What went wrong? Even supposed conservatives have been overly indoctrinated into Progressive thinking, to the point they can’t avoid fiddling with things until they break.

    • Scoots says:

      Lol government hugely at fault here as it is their directive to ensure certain things are done with public utilities. Thus another Government failure xDDDD

  • talgus says:

    as in all other states, we have our share of self-serving bureaucrats that are safely living off the taxpayers.
    Some worse than others. legislature is just to blame as their law created ERCOT in its current form. and there was the warning in 2011 superbowl ice day that all the elected and state bureaucrats ignored.

  • GWB says:

    Texas and lots of other places the media ignored got slammed

    alleged “price gouging”
    Sorry, but that’s what you signed up for. Now, are there ways it might be made less painful? Yes. Of course, that’s what all those other consumers are doing, by paying averaged prices. (Their bills are going to be going up for the next couple of years, until costs are absorbed.)

    Griddy passed skyrocketing energy costs to customers with little to no warning
    Yes. That’s the business model they signed on with. Why are you suing the people who provided this service at such low cost for such a long time? Because “sour grapes”?

    As a cooperative, those bills would’ve been passed to the consumers.
    They would have been passed directly to the consumers. All those other business models are going to pass it on, too, by raising prices.

    But instead of planning for the future by winterizing the grid, business as usual was their modus operandi.
    That’s not entirely on them. The subsidized “green” generators cut their ability to do some things*. ERCOT piled other disincentives on. Biden threw on some disincentives, too. And the market itself disincentivized them, as well, with customers joining Griddy for its low wholesale prices (ignoring the risk portion of the agreement).
    (* Gov’t subsidies do the exact same thing to a market that a monopolistic company or a ‘trust’ would do, using their overwhelming monetary power to drive competitors out of the market. Can we apply the Sherman Act to the feds?)

  • Junius says:

    Left out of this story is that the fossil fuel power plants are only allowed to operate in Texas at somewhere in the neighborhood of 60% capacity due to, as usual, the Federal Department of Energy’s clean air mandates. Governor Abbot asked the federal Department of Energy for a waiver to operate these plants at full capacity before the arrival of the storm and you guessed it, our communist overlords in the Department of Energy refused to grant the waiver.

    If these plants had been operating a full capacity the effects of the polar storm on electricity supply would have been limited. Governor Abbot should have told the Department of Energy to go pound sand and directed the plants to operate at full blast.

    Time for the States to take back all of the powers granted to them under the Constitution.

    • GWB says:

      That’s ONE of the regulatory elements, but a key one. (Messily included in my “Biden threw on some disincentives, too.”)

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