Price of grid crisis spreads across Texas
ERCOT is $1.6B short on bill for generators
The financial damage of the recent power crisis is quickly spreading, rolling across retail power companies, electric cooperatives and the state’s grid manager itself.
The Electric Reliability Council of Texas, or ERCOT, which runs the state’s wholesale power markets, acknowledged Monday that it is short some $1.6 billion needed to pay generators as electricity buyers default after brutal winter weather sent prices skyrocketing.
ERCOT has already barred the retail electricity company Griddy, which missed a required payment, from participating in the state’s wholesale markets. Similar actions are expected against other retail providers that were swamped by prices that hit $9,000 per megawatt hour — the state maximum — and stayed there during the power emergency, analysts said.
Meanwhile, Brazos Electric Power Cooperative, the largest generation and transmission cooperative in Texas, filed for bankruptcy Monday as it became overwhelmed with the costs of buying electricity and natural gas at exorbitant prices during the storm.
Brazos Electric Power Cooperative, based in Waco, listed debts of some $4.5 billion, including $1.8 billion to ERCOT, $480 million to Bank of America and another $2.1 billion in an invoice from ERCOT, which the co-op disputes.
Brazos Electric reported about $1 billion in revenues last year and about $3 billion in assets. The nonprofit power cooperative — the state’s oldest — supplies electricity to some 1.5 million customers from Waco to Cleburne and Lubbock to Corinth.
The co-op said Monday that
its operations won’t be affected as it moves through the bankruptcy process and negotiates with creditors to satisfy the massive bills. Before the storm, Brazos lawyers said, the coop was in solid financial condition in early February and filing for bankruptcy was “unfathomable.”
The bankruptcy is “a direct result of the catastrophic failures that accompanied the winter storm that blanketed the state of Texas” and “maintained its grip of historically sub-freezing temperatures for days,” Brazos said in the filing. “The consequences of these prices were devastating.”
Analysts expect wholesale power buyers to follow Brazos into bankruptcy court. Frank Mccamant, owner of Mccamant Consulting of Austin, said he expects retail electricity providers and other cooperatives to seek bankruptcy protection as ERCOT moves to collect bills. ERCOT sent out some $20 billion in invoices after the storm.
ERCOT the middleman
“I’m confident more names will come up,” Mccamant said.
ERCOT is the middleman in wholesale power markets, matching buyers and sellers. Money merely moves through ERCOT, which bills retail electricity providers and other buyers and passes payments to generators for the most part. To trade in the markets, participants must put up collateral in the event they are unable to pay their bills and go into default.
ERCOT last week liquidated available collateral and then drew down another $800 million in securities to pay generators for the electricity produced during the winter storm. The grid manager said it was still about $1.6 billion short at close of business Monday.
If ERCOT can’t recover the money, officials said, the costs will be spread among both generators and buyers such as retail electricity providers, which could pass them to consumers.
Ed Hirs, an energy fellow at the University of Houston, said Gov. Greg Abbot and the Public Utility Commission have pledged to protect consumers from the extraordinary costs of the near collapse of the power grid two weeks ago. Electric cooperatives, power traders and retail electricity companies won’t be so lucky, he said.
‘Strategic move’
As wholesale power buyers such as Brazos Electric challenge the costs of the systemic failure that they may have to bear, it could be federal bankruptcy judges who decide whether the bills are fair and must be paid, Hirs said.
Bankruptcy, he said, “may be a strategic move, as an attempt to reject making payments to the ERCOT market.”