Brazos files bankruptcy after storm; $2.1 billion electric bill looms

By Sarah Lizee

Olympia, Wash., March 1 – Brazos Electric Power Cooperative, Inc. filed Chapter 11 bankruptcy in the U.S. Bankruptcy Court for the Southern District of Texas on Monday.

“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,” Clifton Karnei, the company’s executive vice president and general manager, said in a 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 Feb. 13 and maintained its grip of historically sub-freezing temperatures for days.”

Electric generation equipment and natural gas pipeline equipment have been reported to have frozen, causing the available generation within the Electric Reliability Council of Texas (Ercot) to dramatically decline.

In the wake of the crisis, the Public Utility Commission of Texas instructed Ercot to set record-high prices for electricity. The price for wholesale electricity was set at the maximum price of $9,000 per megawatt hour (MWh) for more than four days. In addition, Ercot also imposed other ancillary fees totaling more than $25,000 per MWh.

“The consequences of these prices were devastating,” Karnei said.

Brazos Electric was presented with invoices for the seven-day “black swan winter event” by Ercot, which, when combined, amounted to over $2.1 billion, payment of which was required within days.

Brazos Electric responded with a force majeure event letter, and informed Ercot that it was abating payment pending resolution of the force majeure event.

“Brazos Electric suddenly finds itself caught in a liquidity trap that it cannot solve with its current balance sheet,” Karnei said.

“Brazos Electric will not foist this catastrophic ‘black swan’ financial event onto its members and their consumers, and commenced this bankruptcy to maintain the stability and integrity of its entire electric cooperative system.”

The company filed several first-day customary operational motions in support of its financial restructuring, including requests of authorizations to continue paying employee wages and benefits and certain critical vendors.

Brazos said it has $1 billion to $10 billion in assets, and about $2.04 billion in funded debt.

The debt includes roughly $1.81 billion of Federal Financing Bank secured notes due 2045 with various rates from 0.912% to 5.291%, and a $479.98 million unsecured revolving credit agreement due September 2023 with Bank of America, NA as agent.

The company’s largest unsecured creditors are Electric Reliability Council of Texas, based in Austin, Tex., with a $1.81 billion Ercot collateral claim, Bank of America, based in Richardson, Tex., with a $479.98 million bank line of credit claim, Tenaska Power Services Co., based in Omaha, with an $84.25 million power supplier claim, J. Aron & Co., based in New York, with a $76.23 million interest rate swap and power derivatives claim, Morgan Stanley Capital Group Inc., based in New York, with a $60.03 million interest rate swap and power derivatives claim, Bank of Tokyo-Mitsubishi, Ltd., New York Branch, based in Jersey City, N.J., with a $67.42 million interest rate swap claim, and Mercuria Energy America Inc., based in Houston, with a $61.15 million natural gas supplier claim.

Norton Rose Fulbright is serving as lead restructuring counsel, and Berkeley Research Group is serving as financial adviser to Brazos Electric.

Brazos Electric is a 3,994-megawatt generation and transmission cooperative based in Waco, Tex. The company filed bankruptcy under Chapter 11 case number 21-30725.

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