Brazos Electric Power Cooperative, Inc.

HOW DID WE GET HERE?

Brazos Electric Power Cooperative, Inc., or Brazos for short, could not withstand historically low temperatures and historically high power prices caused by the “Black Swan Winter Event” that hit Texas in February 2021. Before the week-long freeze, which hit the state that is much more accustomed to sweltering summers than frozen winters, Brazos was humming along. In fact, Brazos opened a new $129 million credit facility in only November 2020 that it has not drawn a cent on.

Brazos has a multi-layered approach to power generation. It owns its own generating facilities that run variously on natural gas and oil. Yet, Brazos, like almost all Texas power players, also takes part in the energy markets administered by ERCOT. It purchases supplemental power from facilities that run on wind, solar, and other natural resources, as well as facilities similar to Brazos’s own.

Since Brazos participates in ERCOT markets, it was subjected to historically high prices in February 2021 that, at times, were dozens of times higher than prices in January, or at comparable times in past years. The prices, that went up to $9,000 per MWh, caused Brazos to receive a bill from ERCOT for $2.1 billion, a sum that nearly triples what Brazos billed in all of 2020.

Brazos, stating that they refuse to pass these costs on to Texas consumers, has instead filed for bankruptcy protection.

HOW WILL BRAZOS SURVIVE?

Among other things, Brazos used the unprecedented winter storm and resulting prices to declare a “Force Majeure Event” under its contract with ERCOT. This has allowed Brazos to avoid being completely derailed and drained of liquidity, and gave the company time to file for bankruptcy.

Now that Brazos is under bankruptcy protection, the bankruptcy laws will protect them until they can devise a plan to pay their debts. The automatic stay came into existence when the bankruptcy petition was filed, meaning that Brazos’s creditors, including ERCOT, cannot take action against Brazos or its assets without permission from the bankruptcy court. This “breathing room” will allow Brazos to survive, continue paying its new debts, and formulate a plan to pay its old debts, at least in part.

Brazos has filed this bankruptcy case on an incredibly expedited timeline, so they have no disclosed plan or indication of how much creditors will be repaid. However, they have requested the court’s permission to pay certain vendors up to $10 million. Brazos asserts that these creditors are “critical vendors” and that Brazos needs to remain current with them to succeed. The motion to pay these critical vendors will be heard by the court on an emergency basis.

WHAT DOES THIS ALL MEAN FOR CREDITORS?

Right now, the short answer is that we simply do not know. The case was filed on extremely short notice. Texas experienced its catastrophic winter storm only weeks ago, from approximately February 12-19, 2021. Brazos was faced with unprecedented bills from ERCOT only one week before filing, during the week of February 22, 2021. The case was filed in the early morning hours of March 1st.

At this point, it is likely that nobody, including Brazos itself, knows what will be available for distribution to creditors. There are many legal issues, including some connected to unprecedented actions by ERCOT, left to be determined. The best way to stay connected and informed, and to apply pressure to Brazos to pay its legitimate debts, is to serve as a member of a Committee of Unsecured Creditors.

Brazos has retained highly qualified professionals, including Norton Rose Fulbright, sophisticated bankruptcy professionals, and Berkeley Research Group, financial advisors. The Brazos team is working hard to devise a plan to shepherd the Debtor out of bankruptcy. Creditors can and should have a sophisticated team working for them, too.

If you have any questions about serving on Committees, want more information about the filings in the case, or want documents from the Brazos Power case sent to you for free, please reach out to PRLT.