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Brazos Electric seeks bankruptcy court ruling on winter storm energy prices

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REUTERS/Go Nakamura

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(Reuters) - Brazos Electric Power Cooperative Inc has asked the judge overseeing its bankruptcy to determine that Texas’s electric operator applied the wrong pricing mechanism for electricity used during the state's historic winter storm that left millions without power.

In court papers filed on Wednesday, Brazos asked Chief U.S. Bankruptcy Judge David Jones in Houston to issue a partial summary judgment ruling on the matter, which it first raised in a lawsuit filed in August as part of its bankruptcy against the Electric Reliability Council of Texas Inc(ERCOT) over a $2 billion bill it received after the February storm.

Brazos, represented by Norton Rose Fulbright and O’Melveny & Myers, says deciding the pricing dispute quickly will narrow the scope of any further trial over the bill and help it develop a reorganization plan.

Brazos, the largest and oldest electric co-op in Texas, filed for Chapter 11 protection in March after it was hit with the massive bill. The bill for the seven days the storm lasted is nearly three times the co-op’s total power cost from 2020, which was $774 million, according to court papers. For several days during the storm, ERCOT set electricity prices at $9,000 per megawatt hour.

The co-op is now arguing that ERCOT breached its market participant agreement with it by implementing energy rates that do not comply with that contract, which requires rates to be set according to ERCOT’s own protocols in effect at the time. Under certain circumstances, scarcity pricing mechanism can be put into effect to increase prices during energy shortages.

But the ERCOT protocols did not include “firm load shed” or rolling blackouts as a scarcity pricing trigger at the time of the storm, Brazos said in its August complaint. Without that trigger, the co-op said, ERCOT did not have the authority to increase prices to the extent it did during the storm.

Had the electric operator complied with the protocols Brazos says were in place during the storm, the prices would have averaged around $2,404 per megawatt hour, the co-op said in its complaint.

ERCOT, represented by Munsch Hardt Kopf & Harr, said in court papers that it was simply following orders issued by the Public Utilities Commission of Texas. The electric operator recently moved to dismiss the lawsuit, saying that in the event of a conflict, PUCT orders trump the terms of the participant agreement.

The judge shouldn’t even decide the pricing issue, ERCOT said, because it would have to determine the applicability of the state’s electric utility regulations, which it says are handled only by specific Texas courts or the PUCT itself. Additionally, any decision from Jones would impact other co-ops and market participants that are not involved in the bankruptcy, ERCOT argued.

The pricing issue is a pure legal dispute, meaning it can be ruled upon without the need for evidence, Brazos said in Wednesday's filing. Its official committee of unsecured creditors, represented by Kramer Levin Naftalis & Frankel, has also moved for partial summary judgment on the matter.

Brazos has asked Jones to consider its request on Oct. 18, the same day ERCOT’s motion to dismiss the lawsuit is scheduled to be heard.

The case is In re Brazos Electric Power Cooperative Inc, U.S. Bankruptcy Court, Southern District of Texas, No. 21-30725.

For Brazos: Lou Strubeck and Nick Hendrix of O'Melveny & Myers; Jason Boland, Paul Trahan and Steve Peirce of Norton Rose Fulbright; and Lino Mendiola, Michael Boldt and Jim Silliman of Eversheds Sutherland (US)

For ERCOT: Kevin Lippman, Deborah Perry, Jamil Alibhai and Ross Parker of Munsch Hardt Kopf & Harr

For the committee: Thomas Moers Mayer, Amy Caton, Jennifer Sharret, Sean Coffey, Ronald Greenberg of Kramer Levin Naftalis & Frankel; and John Higgins, Eric Wade, Heather Hatfield and M. Shane Johnson of Porter Hedges

Read more:

Brazos seeks more time to control bankruptcy amid new storm-related laws

Brazos seeks approval of $350 million bankruptcy loan

Texas power cooperative files for bankruptcy, citing $1.8 billion grid debt

Reporting by Maria Chutchian

Maria Chutchian reports on corporate bankruptcies and restructurings. She can be reached at maria.chutchian@thomsonreuters.com.

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