Brazos Electric Power Cooperative has reached an agreement in principle with most of its creditors that could result in the Waco-based power supplier exiting bankruptcy by fall.
Brazos filed for Chapter 11 restructuring protection March 1, 2021, after the Electric Reliability Council of Texas slapped the power company with a $1.9 billion bill for electric sold to Brazos during Winter Storm Uri in February 2021.
The agreement, which has the support of ERCOT and power generators such as Calpine, calls for Brazos to sell some assets, provides concessions from the power generators and allows Brazos to exit bankruptcy with its co-op structure. Under the deal, consumer prices likely will increase, but Brazos will set up a $100 million fund to assist low-income and financially strapped clients.
The Brazos Co-op board will schedule a meeting within two weeks to vote on the proposed plan.
The agreement doesn’t yet have the support of the unsecured creditors.
“This is one of the most complex corporate restructurings that I have ever worked on,” Lou Strubeck, a partner at O’Melveny & Myers and co-lead counsel for Brazos, told The Texas Lawbook.
Brazos sought Chapter 11 protection in February when it could not afford the $1.9 billion payment ERCOT said Brazos owed for the power purchased during the four days of subzero temperatures, freezing rain and snow in 2021.
Brazos asked U.S. Chief Bankruptcy Judge David Jones of Houston to reduce the amount the company owed ERCOT by $1.1 billion.
After several days of contentious hearings that featured leaders of ERCOT and the Texas Public Utility Commission explaining their decision-making during Winter Storm Uri, Judge Jones in March ordered the parties to mediation led by his fellow Southern District of Texas Bankruptcy judge Marvin Isgur.
“I want a resolution,” Jones said, “for the person that lives in a trailer in Central Texas and lives somehow on $1,800 a month that can’t afford a doubling of their electric bill because that means they can’t buy groceries on the last week of the month. That’s who we need to be working for.”
Brazos blamed its bankruptcy on ERCOT for imposing a staggering rate of $9,000 per megawatt-hour — hundreds of times the normal rate — on electricity buyers during the storm.
ERCOT contends that price was justified, given the extraordinary market conditions created by the storm and, moreover, that it had no choice but to impose the high rate because it was ordered to do so by the Texas Public Utility Commission.
Most legal experts believed an agreement between Brazos and ERCOT was highly unlikely, as the parties were so far apart on their demands.
“This plan could never have been possible without the tireless efforts of Judge Isgur in mediating this,” Strubeck said. “This case with Judge Jones and Judge Isgur shows why the Southern District of Texas is one of the best places for corporate bankruptcy in the U.S.”
Brazos has until July 26 under Judge Jones’ exclusivity order to present a plan. Confirmation would need to occur within 60 days of that.
Norton Rose Fulbright partners Jason Boland and Paul Trahan and senior associate James Copeland are also representing Brazos in the bankruptcy. ERCOT’s lead counsel is Munsch Hardt shareholder Jamil Alibhai. Kirkland & Ellis is advising the power generators. The unsecured creditors are represented by John Higgins of Porter Hedges.
Berkeley Research Group is the financial advisor for Brazos.