U.S. Bankruptcy Judge David R. Jones of Houston will hear arguments next Monday on the validity of a $1.9 billion claim by ERCOT, operator of the Texas electric grid, against bankrupt Brazos Electric Power Cooperative Inc. of Waco.
In an adversary proceeding stemming from its petition for bankruptcy, Brazos challenged the huge claim by ERCOT, the Electric Reliability Council of Texas. ERCOT in turn asked Judge Jones to either dismiss Brazos’s adversary complaint or abstain from ruling on it on the ground that pricing disputes between ERCOT and electric providers in Texas are best left to the state rather than the federal bankruptcy court.
The dispute, which stems from emergency pricing for electricity imposed during February’s devastating Winter Storm Uri, could have far-ranging implications for other electric providers who were forced by ERCOT to pay up to $9,000 per megawatt hour – 300 times the normal rate – during the winter storm. Uri, categorized by the National Oceanic and Atmospheric Administration as the costliest U.S. winter storm on record, resulted in a massive failure of power-generating facilities, leaving more than 4.5 million homes and businesses in Texas without electricity, many for several brutally cold days.
Brazos is represented by, among others, Lou Strubeck Jr. and Nick Hendrix of O’Melveny & Myers in Dallas; Jason L. Boland, Paul Trahan, Michael M. Parker and Steve A. Peirce from the Houston, Austin and San Antonio offices of Norton Rose Fulbright; and Lino Mendiola and Michael Boldt of Eversheds Sutherland in Austin.
Brazos, the state’s largest and oldest electric cooperative, filed for Chapter 11 bankruptcy protection March 1. It has claimed in court documents that the staggering electric bill from ERCOT was the principal cause of the bankruptcy filing. Brazos noted that the amount sought by ERCOT just for the week of the winter storm was more than the co-op’s total revenues from wholesale delivery of power in 2019 and 2020 combined.
ERCOT argued that it had no choice but to impose the severe rates for electricity based on emergency orders from the Public Utility Commission, the state agency that regulates electric utilities in Texas, which mandated so-called “scarcity pricing” of electricity during the winter storm “to encourage any and all generation able to come online.”
In a Sept. 14 motion to dismiss Brazos’s adversary complaint, ERCOT said it is “directly responsible and accountable” to the PUC, which has “complete authority” over its operations. In other words, the grid operator said, in imposing the emergency prices for electricity, it was just following orders from the governing state regulatory agency.
Brazos, in a Sept. 28 response to ERCOT’s motion, said the legitimacy of the emergency pricing rulings by the PUC – which is not a party in the bankruptcy case – is not at issue in the adversary complaint. Rather, Brazos said, ERCOT’s $1.9 billion claim is invalid on contractual grounds. Brazos contends ERCOT violated its own protocols and its contract with Brazos by failing “in spectacular fashion” to ensure the reliability of the Texas electric grid and by imposing “exorbitant and excessive” electric prices, which were “avoidable and constructively fraudulent.”
Further, Brazos roundly rejected ERCOT’s contention that Jones should abstain from ruling on the validity of ERCOT’s $1.9 billion claim in bankruptcy and should instead defer to Texas state courts and agencies.
“This court,” Brazos wrote, “is the proper forum to resolve the ERCOT claim and any related issues.”
Monday’s hearing will be conducted virtually. Information on how interested parties can tune in can be found at Jones’s homepage.