Texas electric utility hit by $ 2.1 billion ERCOT bill, files for bankruptcy

WACO, Texas (KXAN) – As the Texans struggled through the worst winter storm to hit the power grid in the early morning hours of February 15, the people overseeing that grid were working on plans to save it.

This plan ultimately led to the Texas Electrical Reliability Council and the Texas Utilities Commission to increase the price of wholesale grid power to $ 9,000 per megawatt hour. That price was $ 20.79 per megawatt hour in the weeks leading up to the storm, according to ERCOT records.

The price increase was intended to ensure that regional utilities reduced the amount of electricity ordered by ERCOT in its Level 3 energy emergency alert of February 15, which resulted in 4.1 million Texans losing power.

This pricing has led Brazos Electric Energy Cooperative, which bills itself as the largest and oldest production and transmission co-op in Texas, to file for bankruptcy.

“The consequences of these awards have been devastating,” said executive vice president and general manager of Brazos Electric Power Cooperative Clifton karnei wrote in the co-op’s March 1 Chapter 11 bankruptcy petition.

A Chapter 11 filing is designed to keep the co-op running and is designed as a way for a debtor to reorganize and pay creditors over time, according to the United States Court’s website.

Brazos Electric’s coverage area includes 68 counties split between Houston and the Texas Panhandle, according to the co-op’s website.

The file presents a list on how to file bankruptcy entities to which the cooperative owes the largest sums of money.

ERCOT is the co-op’s largest debt, amounting to over $ 1.8 billion. The co-op’s second largest debt is to Bank of America, which has a line of credit totaling $ 479.9 million.

Chapter 11 petition shows major creditors BEPC owes (Source: Brazos Electric Power Cooperative bankruptcy filing)

Brazos Electric lists the ERCOT debt as “disputed”.

“At the start of February 2021, the idea that a financially stable cooperative like Brazos Electric would end the month preparing for bankruptcy was unfathomable,” Karnei wrote in the filing.

Karnei has served on ERCOT’s board of directors for over a decade and was a member in 2011, the same year the Federal Energy Regulatory Commission released a report detailing how ERCOT could prevent winter blackouts. within its statewide power grid. A winter storm in February 2011 left more than three million Texans without power for days as power outages hit Texas.

Part of the 2011 report explained how winterizing the power grid would help prevent the massive power outages of 2011 from happening again.

Then the winter storm of 2021 struck, cutting power to four million Texans and believed to be the cause of dozens of deaths across the state in four days.

Brazos Electric Power Cooperative Executive Vice President Clifton Karnei was a member of the ERCOT board until February 25; when the co-op received a $ 2.1 billion bill from the Texas power grid operator.

Karnei resigned from the ERCOT board last week – becoming the seventh resignation to hit the board in response to the fallout from the power grid failure.

Karnei’s resignation came the same week that invoices totaling $ 2.1 billion owed to ERCOT came due.

On February 25, the day Karnei resigned, Brazos Electric Cooperative sent ERCOT a letter explaining that the cooperative would not foot the bill.

The Brazos Electric file claims that the ERCOT wholesale market will see charges of $ 55 billion for the one-week winter storm period; four years of charges from a single week.

“Brazos Electric will not impose this catastrophic ‘black swan’ financial event on its members and their consumers, and has started this bankruptcy to maintain the stability and integrity of its entire business.
cooperative electric system, ”Karnei wrote in the bankruptcy declaration filed in Houston on March 1.

Brazos Electric Cooperative’s total electricity costs for all of 2020 were $ 774 million.

The winter storm of 2011

Karnei was on the ERCOT board of directors when the Federal Energy Regulatory Commission released a report urging the Texas power grid to overwinter. The 357-page report detailed nine separate results that showed exactly what happened inside the ERCOT power grid that left millions of people without power for so long.

According to the FERCE report, the biggest problem during the cold weather event was the freezing of instrumentation and equipment.

The report continued:

“Many generators have failed to prepare adequately for winter, including: faulty or inadequate traces of heat, missing or inadequate windbreaks, inadequate insulation and wedging (metal cladding for insulation), lack of having or maintaining heating elements and heat lamps in instrument cabinets, lack of training of operators and maintenance personnel on winter preparations, lack of training and fuel change drills, and lack of ensuring a adequate fuel.

The report found that a third of ERCOT’s fleet was offline at some point during the 2011 storm.

“These major generator failures exceeded ERCOT’s reserves, which ultimately fell below the operational safety level. If ERCOT had not acted quickly to reduce the load, it would most likely have experienced widespread and uncontrolled outages throughout the ERCOT interconnection, ”the 2011 report states.

On February 17, KXAN reached out to Karnei in his office to ask for an interview regarding the steps he took as a member of the ERCOT board in 2011 to ensure that the state’s electricity grid was protected from winter weather.

Karnei never responded.

In Karnei’s bankruptcy filing, he referred to the lack of winterization that still plagues the Texas power grid.

Texas power plants, pipelines and wind turbines are built to operate under extreme conditions
summer temperatures and are not wintered in the manner and degree customary in
more traditionally cold states, ”Karnei wrote.

The continued lack of wintering following the 2011 FERC report was also a subject of questions from lawmakers during last week’s hearings inside the Texas Capitol. Senator Roland Gutierrez said during the hearing that he plans to introduce a bill to force wintering inside the Texas power grid.

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