Members of bankrupt Brazos Electric question strategy amid ERCOT dispute

3 minute read

An electrical substation is seen after winter weather caused electricity blackouts in Houston, Texas, U.S. February 20, 2021. REUTERS/Go Nakamura//File Photo

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  • Two member coops say proposal puts financial burden on customers
  • Brazos says it needs time to resolve $2 bln ERCOT bill

(Reuters) - Members of wholesale power supplier Brazos Electric Power Cooperative Inc are challenging its bankruptcy strategy following the Texas winter storm that knocked out power for millions and left Brazos with a $2 billion energy bill.

Tri-County Electric Cooperative, one of Brazos’s largest members, filed papers on Wednesday accusing Brazos of pursuing a restructuring proposal that would place the financial burden on the backs of retail and commercial ratepayers. Its statements came in an objection to Brazos’ request to extend its control over the bankruptcy process until March 28, 2022.

Brazos, the largest electric coop in Texas, filed for Chapter 11 protection in March after it was hit with a $2 billion energy bill from the state’s electric markets operator, the Electric Reliability Council of Texas (ERCOT). The bill for the seven-day storm 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, around 500 times the usual rate.

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Brazos and ERCOT have since been in litigation in bankruptcy court over the bill.

Now, Brazos says it needs more time to file a reorganization plan with the court. But Tri-County and another major member, CoServ Electric, say Brazos has not seriously considered options that they say would bring in more money to the estate without sticking ratepayers with the bill.

Tri-County and CoServ say Brazos should consider selling some of its transmission, distribution and generation assets. Instead, they say, Brazos is focused on the securitization of the ERCOT claim, which they say would pass along significant costs to ratepayers.

Both suggest that U.S. Bankruptcy Judge David Jones, who oversees the case, grant Brazos a shorter extension, rather than the five months it wants.

“It is unacceptable for the Debtor to pursue the path of securitization, which burdens the member-owners with billions of dollars of the Debtor’s obligations, unless Brazos also concurrently analyzes with the same commitment and vigor other potential options which are much less onerous for the retail and commercial rate payers,” Tri-County said in its objection.

A group of smaller member coops said they support Brazos' request for more time.

Brazos argues in court papers that it needs to know exactly how much the ERCOT claim will ultimately amount to before it can proceed with a reorganization plan, and it won’t know that amount until the litigation is resolved.

A Brazos lawyer did not immediately respond to a request for comment.

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 Tri-County: Sarah Schultz, Laura Warrick and Abid Qureshi of Akin Gump Strauss Hauer & Feld, and J. Robert Forshey and Jeff Prostock of Forshey Prostok

For CoServ: Charles Gibbs, Eric Seitz and Jane Gerber of McDermott Will & Emery

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