By Tyler Durden
The Arctic blast and severe winter storms that pounded Texas weeks ago have claimed another victim as the credit crisis widens. Texas’s largest power cooperative filed for bankruptcy protection in federal court in Houston Monday, citing a $1.8 billion bill from the state’s grid operator, ERCOT, according to Reuters.
According to court documents, Brazos Electric Power Cooperative, the largest generation and transmission co-op in the Lone Star State, filed for Chapter 11 in the U.S. Bankruptcy Court for the Southern District of Texas. The company said it could not pay a $1.8 billion bill from ERCOT stemming from a severe cold snap last month.
Brazos and other utility companies who have committed to providing power to the grid were unable to during the mid-February crisis that left up to 4 million customers without power. This meant utilities had to purchase replacement power at extremely high rates, and some of these extra costs were passed on to customers.
Clifton Karnei, executive vice president of Brazos, said in the filing that the magnitude of the charges “could not have been reasonably anticipated or modeled” and surpassed Brazo’s highest liquidity levels in years. On Feb. 25, Brazos told ERCOT that would it wouldn’t be able to pay what was owed. Leaving the company with “no choice” but to file for bankruptcy. Brazos has assets and liabilities between $1 billion and $10 billion.
“Brazos Electric suddenly finds itself caught in a liquidity trap that it cannot solve with its current balance sheet,” Karnei said in the filing.
Readers may recall, we (Zero Hedge) were one of the first to uncover the “mind-blowing” power bills some Texans were slapped with. Some people, who opted into variable power bills, were charged as much as $17k for power. We even did that math and said it would cost $900 to charge a Tesla in Texas during the energy crisis.
“The municipal power sector is in a real crisis,” Maulin Patani, a Volt Electricity Provider LP founder, an independent power marketer who is not affiliated with Brazos, told Reuters. He said ERCOT should suspend the service charges to stop the waterfall of defaults.
Fitch Ratings warned last week about downgrades for all Texas municipal power firms on ERCOT’s grid. The debt rating company said costs from the storm “could exceed the liquidity immediately available to these issuers.”
The first causality of the Texas energy crisis was Just Energy, which saw shares last week crash by more than 20% after the company released a statement about steep losses incurred last month, warning of doubts about remaining a ‘going concern’ (translation: it may not survive).
ERCOT recently suggested some market participants have not posted collateral to cover some of the bills as defaults begin.
Kenan Ogelman, ERCOT’s vice-president of commercial operations, said market participants who buy power from them have to post collateral as a down payment on energy purchases. He said some entities have “failed to deliver it.”
“Defaults are possible, and some have already happened,” Ogelman warned.
Dozens of other energy providers face massive charges for electricity during February’s freak Arctic blast in Texas. The default domino has begun…
Source: Zero Hedge
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