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ERCOT & Brazos Electric to Resolve $1.9B Dispute for Texas

Brazos Electric Power Cooperative and the Electric Reliability Council of Texas agreed Thursday to mediate their dispute over a $1.9 billion utility bill stemming from last February’s winter storm after U.S. Bankruptcy Judge David Jones urged both sides to do what’s best for Texans.

“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.”

After the judge’s not-so-gentle encouragement, the two sides in one of the largest bankruptcy cases pending in Texas broke for more than two hours and came back with news to please Jones who had suggested it.

“ERCOT worries about Texas and Texans as much as anyone does,” said Jamil Alibhai, one of the lawyers for the nonprofit entity that manages the state’s power grid.

Brazos, the state’s largest and oldest electric co-operative, filed for protection under Chapter 11 of the federal bankruptcy code after being socked with extraordinary bills for power it purchased during the crippling storm of February 2021 that left millions of Texans without electricity. In court filings, 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.

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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.

The matter presently before Jones, who is overseeing the Brazos bankruptcy case, is an adversarial proceeding Brazos filed against ERCOT challenging the grid operator’s creditor claim of $1.9 billion for power provided during the storm.

Jones’s suggestion that the two sides find a solution to their differences came during testimony Thursday by Kenan Ögelman, ERCOT’s vice president of commercial operations. Ögelman explained that ERCOT is a nonprofit, “invoice in, payment out” entity that matches buyers of electric power with sellers in a fluid market. If one party defaults on paying for power, he said, everyone else in the market, ultimately, has to make up the difference. Those costs, he said, eventually are passed on to ratepayers.

Jones, frequently interrupting Ögelman’s testimony, said: “We ought to be trying to figure out a way to make this all work. The ERCOT grid is not just a company. It’s a lifeblood for everybody that lives in this state.”

After a series of recesses and closed-door meetings, ERCOT and Brazos returned to Jones’s courtroom to say they agreed with his distinct suggestion that they mediate their dispute before U.S. Bankruptcy Judge Marvin Isgur, Jones’s colleague on the bankruptcy bench in the Southern District of Texas. Isgur and Jones are longtime friends and former law partners.

Depending on what happens in mediation, the bankruptcy proceeding before Jones is scheduled to resume in mid- to late April.