in Charge Are Trustworthy You’re Wrong, Largest Texas Power Coop Files for Bankruptcy…
The Arctic blast and severe winter storms that pounded Texas weeks ago have claimed another victim as the credit crisis widens. Texas’s largest power cooperative filed for bankruptcy protection in federal court in Houston Monday, citing a $1.8 billion bill from the state’s grid operator, ERCOT, according to Reuters.
According to court documents, Brazos Electric Power Cooperative, the largest generation and transmission co-op in the Lone Star State, filed for Chapter 11 in the U.S. Bankruptcy Court for the Southern District of Texas. The company said it could not pay a $1.8 billion bill from ERCOT stemming from a severe cold snap last month.
Brazos and other utility companies who have committed to providing power to the grid were unable to during the mid-February crisis that left up to 4 million customers without power. This meant utilities had to purchase replacement power at extremely high rates, and some of these extra costs were passed on to customers.
Clifton Karnei, executive vice president of Brazos, said in the filing that the magnitude of the charges “could not have been reasonably anticipated or modeled” and surpassed Brazo’s highest liquidity levels in years. On Feb. 25, Brazos told ERCOT that would it wouldn’t be able to pay what was owed. Leaving the company with “no choice” but to file for bankruptcy. Brazos has assets and liabilities between $1 billion and $10 billion.
“Brazos Electric suddenly finds itself caught in a liquidity trap that it cannot solve with its current balance sheet,” Karnei said in the filing.
Readers may recall, we were one of the first to uncover the “mind-blowing” power bills some Texans were slapped with. Some people, who opted into variable power bills, were charged as much as $17k for power. We even did that math and said it would cost $900 to charge a Tesla in Texas during the energy crisis.
“The municipal power sector is in a real crisis,” Maulin Patani, a Volt Electricity Provider LP founder, an independent power marketer who is not affiliated with Brazos, told Reuters. He said ERCOT should suspend the service charges to stop the waterfall of defaults.
Fitch Ratings warned last week about downgrades for all Texas municipal power firms on ERCOT’s grid. The debt rating company said costs from the storm “could exceed the liquidity immediately available to these issuers.”
The first causality of the Texas energy crisis was Just Energy, which saw shares last week crash by more than 20% after the company released a statement about steep losses incurred last month, warning of doubts about remaining a ‘going concern’ (translation: it may not survive).
ERCOT recently suggested some market participants have not posted collateral to cover some of the bills as defaults begin.
Kenan Ogelman, ERCOT’s vice-president of commercial operations, said market participants who buy power from them have to post collateral as a down payment on energy purchases. He said some entities have “failed to deliver it.”
“Defaults are possible, and some have already happened,” Ogelman warned.
Texas Attorney General Ken Paxton filed a lawsuit against power company Griddy, LLC for “violating the Texas Deceptive Trade Practices Act through false, misleading, and deceptive advertising and marketing practices,” according to a statement released by Paxton’s office.
“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 statement said.
“Griddy misled Texans and signed them up for services which, in a time of crisis, resulted in individual Texans each losing thousands of dollars. As Texans struggled to survive this winter storm, Griddy made the suffering even worse as it debited outrageous amounts each day. As the first lawsuit filed by my office to confront the outrageous failure of power companies, I will hold Griddy accountable for their escalation of this winter storm disaster,” said Paxton. “My office will not allow Texans to be deceived or exploited by unlawful behavior and deceptive business practices.”
Here’s the lawsuit:
Griddy, which debuted in 2017, allowed people to opt into variable-rate electricity plans – essentially paying wholesale prices for electricity instead of a fixed rate. But when the February winter freeze and multiple storms resulted in power rates to skyorcket – some Texans were slapped with thousands of dollars in energy bills.
The lawsuit seeks relief from Griddy to ensure that “the Texans it serves will receive truthful and accurate energy service in the future, and to have the Court order refunds from available sources,” the statement concluded.
Paxton’s lawsuit was inevitable as we noted last week, variable-rate electricity plans would come under intense scrutiny.
The good news is that most Texans don’t have variable plans, according to Catherine Webking, a partner at Austin-based law firm Scott Douglass & McConnico.
Unfortunately, when energy demand is high, the wholesale price of power can be quite expensive. Certainly, scrutiny is building across multiple state governments about how some energy companies charge their customers.
One Texas resident was slapped with a multi-thousand dollar power bill. She said:
“I’m not exactly sure what I’m supposed to do – should I take from my 401K? Should I get a loan?”
Maybe customers with variable-rate plans should get into the game of hedging? Or perhaps, for starters, at least keep an eye on power rates…
Dozens of other energy providers face massive charges for electricity during February’s freak Arctic blast in Texas. The default domino has begun… Source: ZeroHedge
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