Bankrupt Texas electricity supplier Brazos Electric Power Cooperative Inc. received conditional approval Tuesday for a Chapter 11 plan disclosure statement centered on a deal with the Electric Reliability Council of Texas and a sale of the debtor's power generation assets.
During a hybrid virtual and in-person hearing in Houston, U.S. Bankruptcy Judge David R. Jones said he was comfortable with where the case had progressed, and said he would grant conditional approval of the plan disclosures and schedule a hearing to consider its final approval alongside a confirmation of the plan itself.
"In my mind, the disclosure statement strikes a very nice balance," Judge Jones said.
He overruled an objection from creditor South Texas Electric Cooperative Inc., saying the disclosure statement provides sufficient information for creditors to cast an informed vote on the plan proposal while also preserving the rights of parties to renew their objections at the combined hearing.
Brazos sought bankruptcy protection on March 1, 2021, saying it had been forced into a liquidity crisis after being hit with $2.2 billion in wholesale power bills and ancillary costs after the previous month's deadly winter storm shut down power generation across Texas, leaving millions without electricity for days. During the peak of the storm, the price for electricity on the ERCOT power market reached the maximum amount allowed by law.
ERCOT asserted a $1.9 billion claim against Brazos for unpaid invoices arising from the storm, and the debtor objected to the claim through an adversary proceeding. In the midst of a trial over the claim earlier this year, the parties pivoted to mediation at Judge Jones' urging.
A settlement emerged from the mediation, with Brazos agreeing to make payments to ERCOT totaling $1.15 billion on the effective date of the plan, with additional installment payments aggregating to about $150 million over 12 years. The debtor will also pay out about $116 million to ERCOT from the proceeds of a sale of its power generation assets, which is a requirement under the plan.
The terms of the plan call for Brazos to reorganize as a transmission cooperative and cease all generation activities.
South Texas Electric Cooperative attorney Patrick L. Hughes of Haynes and Boone LLP said during the hearing Tuesday that the disclosure statement lacked sufficient information about the nature of the plan and how it would leave the state's power market short of capacity while allowing Brazos to obtain liability releases from ERCOT and other participants in the market for defaulting on its contractual obligations.
Judge Jones dismissed that objection at this stage of the case, saying it was a litigation strategy being deployed by South Texas Electric Cooperative disguised as a plea for transparency.
"This has nothing to do with transparency or more disclosure, it has to do with the litigation strategy you're trying to set up," Judge Jones said of the objection. "Don't take something that is sacrosanct to me and try to pervert it into something else."
A final hearing on the disclosure statement and confirmation of the proposed plan is scheduled for Nov. 14 before Judge Jones.
Brazos Electric Power Cooperative Inc. is represented by Louis R. Strubeck Jr. and Nick Hendrix of O'Melveny & Myers LLP, Jason L. Boland, Julie G. Harrison, Maria Mokrzycka, Paul Trahan and Steve A. Peirce of Norton Rose Fulbright, and Lino Mendiola III of Eversheds Sutherland.
ERCOT is represented by Jamil N. Alibhai, Kevin M. Lippman, Ross Howard Parker and Deborah M. Perry of Munsch Hardt Kopf & Harr PC, and Elliot Clark of Winstead PC.
South Texas Electric Cooperative is represented by Patrick L. Hughes, Jordan Chavez and David Trausch of Haynes and Boone LLP.
The bankruptcy case is In re: Brazos Electric Power Cooperative Inc., case number 4:21-bk-30725, in the U.S. Bankruptcy Court for the Southern District of Texas.
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