The financial fallout from the Texas energy system collapse of two weeks ago has begun. And with tens of billions of dollars in energy costs yet to be settled from a week of sky-high wholesale electricity prices in the midst of a breakdown of the state’s power generation system, the wave of financial disruption is likely just getting started.  

On Monday, Brazos Electric Power Cooperative, which provides power to 16 distribution cooperatives serving about 700,000 customers in 68 counties, filed for Chapter 11 bankruptcy protection to protect it from an estimated $2.1 billion in energy costs and charges owed to state grid operator ERCOT. 

“Brazos Electric will not foist this catastrophic ‘black swan’ financial event onto its members and their consumers,” Clifton Karnei, the co-op’s general manager and the seventh ERCOT board member to resign after the crisis, wrote in the bankruptcy declaration filed in federal court in Houston. The single week’s bill was more than twice as high as the $774 million that Brazos paid for power in 2020, he stated. 

Brazos is the first of what could be a wave of public power agencies and municipal utilities finding themselves unable or unwilling to pay for the electricity purchased throughout the five days of ERCOT’s winter grid emergency. Freezing temperatures caused cascading problems in the state’s natural-gas production and delivery network that restricted fuel supply to the power plants relied upon for about two-thirds of wintertime electricity supply. It also froze up sensors and cooling systems that forced natural gas, coal and nuclear power plants to trip offline. 

At the same time, ERCOT’s energy-only market saw wholesale energy prices spike to their maximum of $9,000 per megawatt-hour throughout much of the crisis, compared to average prices of $22 per MWh last year. But that "scarcity pricing," designed to encourage power plant owners to invest in ways that will ensure they’re able to capitalize on such high power prices to secure adequate supply during times of peak grid demand, had no effect on increasing electricity output from power plants that were physically unable to operate. 

Karnei estimated that the ERCOT wholesale market will incur charges of $55 billion over the week of the disaster, “equal to what it ordinarily incurs over four years.” 

Texas natural-gas prices experienced similar spikes, rising from week-before prices of $2 per million Btu to an average of $200 per million Btu, according to Fitch Ratings, which placed all retail and wholesale utilities within ERCOT on “Rating Watch Negative” status last week. 

Financial hit could slow utility clean-energy investments

While electric cooperatives and municipal utilities typically have enough owned or contracted generation to meet their customers’ needs and hedge their costs, the electricity and natural-gas crisis forced many to incur “exponentially higher purchased power costs,” Fitch wrote. “In some cases, these costs are reported to be in the hundreds of millions of dollars.” 

The financial impact is also likely to put a crimp in public utilities’ investment plans, including efforts to replace polluting fossil fuel power plants with renewable energy. Paula Gold-Williams, president and CEO of CPS Energy, said Friday that the San Antonio municipal utility may have to postpone plans to replace aging fossil-fueled generation with more than a gigawatt of solar, energy storage and flexible demand-side resources, given the yet-to-be-calculated but likely extremely high excessive costs it incurred during the crisis. 

“I think it’s going to be a little bit slower on the resource plan,” she told the San Antonio Express-News, “until we can answer quite a few questions about what is our path forward on trying to resolve these big financial pressures.”

Retail energy providers face cascading financial crisis

Texas retail energy providers serving customers of the state’s investor-owned utilities may also be facing financially disastrous imbalances between the prices they offered their customers and cost of power they were forced to buy on the spot markets. 

Griddy Energy, an upstart retail provider with a product that exposes customers to wholesale energy market prices, has seen some customers get hit with bills that will force them into bankruptcy if paid. On Monday, Griddy was shut down by ERCOT for failure to pay its bills, and Texas Attorney General Ken Paxton sued the company on the grounds that it violated state deceptive trade practices law by failing to disclose that risk or prepare financially to protect its customers.  

Larger power companies are also feeling the pinch. Vistra, which owns power plants and operates a retail business with more than 2 million customers, estimated its losses at $900 million to $1.3 billion.

At the same time, certain market players reaped a windfall from the Texas price spikes. Roland Burns, CFO of Comstock Resources, a natural-gas producer owned by billionaire and Dallas Cowboys owner Jerry Jones, told investors on an earnings call that the profits it was able to earn during the crisis were “like hitting the jackpot with some of these incredible prices.” 

Texas lawmakers have called for offering relief to customers unable to pay their bills, but it’s unclear how the state will cover the unpaid costs. The state was facing a $1 billion budget deficit heading into its legislative session last month, and the state’s $10 billion Economic Stabilization Fund amounts to roughly one-fifth of the estimated energy costs incurred during the week of the crisis. 

Alison Silverstein, a former senior adviser at the Federal Energy Regulatory Commission and the Public Utility Commission of Texas, compared the likely impact of the Texas crisis to the 2000-2001 energy crisis that gripped California in the wake of its own attempt at market deregulation. That crisis forced utility Pacific Gas & Electric into bankruptcy and led to then-Gov. Gray Davis losing a recall election to Arnold Schwarzenegger in 2003.  

“The immediate credit issues will get worse and be complicated as we figure out who owes how much to whom,” Silverstein wrote in a Monday email. As a neutral market operator, “ERCOT has no money" and is forced to spread unsettled market payments among remaining market participants, she noted. 

"So this will be a circular firing squad of blame," albeit one dealing with legitimate and complicated conflicts, "among a bunch of players who lost a ton of money and a few who did pocket huge bucks."