Brazos Financing Utility Plan Rider
Starting January 3, 2023, members will see a new line item on billing statements labeled Brazos Financing Rider. This new tariff recovers Brazos Winter Storm Uri costs and the cost of exiting our all-requirements wholesale power contract with Brazos.
The Brazos Financing Rider is a per kilowatt-hour tariff. Based on calculations in the tariff, the amount will be 1.2 cents/kWh beginning in January 2023 and will be re-evaluated every six months. As the co-op grows, the Brazos Financing Rider kWh amount is expected to decrease.
Tri-County Electric Cooperative chose to list out the Brazos Financing Rider on member billing statements so members see every charge included in the billed amount. These costs could have been rolled into PCRF, but the leadership team and board wants to maintain utmost transparency.
Brazos Hardship Fund
A hardship fund was established as a result of the Brazos bankruptcy proceedings to help offset costs for low-income members. Applications are open for qualifying, low-income residential members to apply. Eligibility criteria and documentation requirements are available on the program website.
Tri-County Electric Co-op compiled resources to address all member questions, including:
- A list of frequently asked questions
- Member communications on power costs and the Brazos bankruptcy
- What happened during Winter Storm Uri
- Why Brazos went bankrupt
- Member financial impact
- Future power cost outlook
Tri-County Electric Co-op's Relationship with Brazos
Tri-County Electric Co-op is a not-for-profit, member-owned distribution electric provider. We purchase power through an all-requirements power contract from Brazos Electric Power Cooperative, a Waco-based generation and transmission cooperative. Brazos provides power to Tri-County Electric Co-op and 15 other distribution electric cooperatives that power residential, commercial and industrial consumers in parts of 68 counties in Texas. In 1941, Tri-County Electric Co-op and the other member-cooperatives formed Brazos, and entered into long-term, all-requirements contracts to secure power delivery service and procure reliable, low-cost power.
Brazos owns generation plants and sells power that is generated by the fleet to the ERCOT market each day. Brazos purchases power from the ERCOT market on the behalf of its 16 member-cooperatives, including Tri-County Electric Co-op, to meet our load requirements. Tri-County Electric Co-op sells the power to you, the member, as the end consumer. Additionally, Brazos owns transmission lines and substations that tie in to our distribution system that powers your homes and businesses. Each month, Brazos bills Tri-County Electric Co-op our portion of the monthly energy sales, delivery fees and administrative costs. The only way Brazos can repay its obligations and operating costs is by passing the costs to member-cooperatives through the all-requirements contract.
What Happened to Brazos
Prior to Uri, Brazos modeled and estimated Tri-County Electric Co-op’s load demand would be sufficiently supported by the Brazos generation fleet. However, during Uri, the Brazos generation fleet failed. Therefore, revenue from the Brazos generation fleet was not available to offset the costs of electricity needed to support the Brazos member-cooperatives. Brazos failed to have the foresight to purchase additional power in advance at lower costs to serve the anticipated rise in member cooperative loads as other utilities in Texas did. Ultimately, the power purchases made late by Brazos were not enough to avoid market volatility and exposure to high costs. Nearly all the power not supplied by Brazos plants was purchased on the $9,000 per MWh ERCOT market, and natural gas not purchased in advance subjected Brazos to the high market costs of natural gas. As a result, distribution co-op members of Brazos received exorbitant power bills for seven days of electricity – nearly three times the entire year of 2020 for most Brazos co-ops, including Tri-County Electric Co-op.
On March 1, 2021, Tri-County Electric Co-op was brought into an unprecedented situation when Brazos filed chapter 11 bankruptcy due to the costs it incurred during Winter Storm Uri and its inability to pay those costs.
It is important to note we are not alone, and the impacts of Winter Storm Uri and the extraordinary costs that were incurred during this time affected the ERCOT market and the Texans it serves. Retail Electric Providers, municipalities and cooperatives all must distribute costs to the end consumer. Some providers started recouping these costs in 2022. Tri-County Electric Co-op worked to find the best solution to reduce the impact of these extraordinary costs to you, our members. When other providers securitize or finance in ERCOT, those costs will not be added to your bills.
Tri-County Electric Co-op Takes Care of our Member-Owners
In the week leading up to Uri, Tri-County Electric Co-op anticipated severe conditions and proactively prepared to keep the power on for our members. During Uri, Tri-County Electric Co-op focused on managing the rolling blackouts mandated by ERCOT while minimizing any disruption in service so that our members could remain safe and warm in their homes during the extremely cold weather that paralyzed the entire State of Texas. Lives were saved because members had electricity that kept their homes warm for their family and friends who were not on Tri-County Electric Co-op system. It was simply not an option for Tri-County Electric Co-op’s board and management to turn off the power for extended periods to save in on electricity costs. Human lives would have been at stake.
Over the past 18 months Tri-County Electric Co-op’s Board of Directors and management have left no stone unturned to protect the rights of the members through the bankruptcy process. Tri-County Electric Co-op has worked on behalf of our members to successfully negotiate settlement terms for the Brazos bankruptcy and to further reduce our obligation to Brazos. Brazos originally billed Tri-County Electric Co-op $791 million for electricity consumed during Uri. With the work of the Tri-County Electric Co-op Board, management, hired consultants and attorneys, Brazos filed their exit plan in the bankruptcy case which provides that Tri-County Electric Co-op will pay $477 million for its allocated share of Uri costs incurred by Brazos (a negotiated reduction of $314 million). Although it is hard to contemplate a power bill of this size for such a short period of time, without the reductions, the amounts would have financially crippled our cooperative’s ability to continue to serve you with reliable power and maintain its stability.
In addition to these monetary savings, and at the insistence of the Public Utility Commission of Texas and ERCOT with Tri-County Electric Co-op's support, Brazos was ultimately forced to make changes to the ranks of its senior management team, including the resignation of its Executive Vice President & General Manager. Additionally, to mitigate the costs of Uri, Brazos will sell its generation fleet.
While many stakeholders worked together to achieve the negotiated reductions in the power bills incurred by Brazos during Uri, we believe that these reductions would not have been possible if the Tri-County Electric Co-op Board of Directors had not hired bankruptcy counsel and consultants to stand strong for our co-op and you, the members. In May 2021, Tri-County Electric Co-op’s Board of Directors and management were the first to call for management changes at Brazos and for the sale of the generation assets to generate money to allow Brazos to emerge from bankruptcy and, most importantly, to reduce the burden to our member-owners.
Tri-County Electric Co-op Board of Directors and senior management are members of this co-op, and we are in this together alongside our members. We understand the grave impact that rising natural gas costs, high inflation, rising gasoline prices and rising interest rates have had on each member of the co-op. Tri-County Electric Co-op has regularly communicated with you since the beginning of the Brazos bankruptcy filing so that members would know what is happening and how the bankruptcy may impact you and your family. That has not always been popular, but the Tri-County Electric Co-op board and senior management team believes it is critical to be transparent so members have access to information regarding the Brazos bankruptcy. You can find all communications in the Communications Center to the right.
Brazos Bankruptcy Financial Impact to Members
In the aftermath of Uri, the Texas Legislature enacted Senate Bill 1580 (codified at Texas Utilities Code §§ 41.151 – 41.163), which authorizes electric cooperatives to utilize a financing mechanism called “securitization” to pay the extraordinary costs and expenses resulting from Uri. Tri-County Electric Co-op is one of three Brazos member-cooperatives that considered alternative financing options to fund these extraordinary expenses. In lieu of securitization, Tri-County Electric Co-op utilized a traditional cooperative financing method and entered into an agreement with CoBank, a cooperative and member of the National Farm Credit System, to finance Tri-County Electric Co-op’s obligations related to Uri and the Brazos bankruptcy.
On September 29th, 2022, your co-op's senior management team presented to the Tri-County Electric Co-op Board of Directors an option to finance our allocation of the Brazos extraordinary costs which avoids securitization. By utilizing traditional cooperative financing, Tri-County Electric Co-op will have the flexibility to finance at lower interest rates, avoid excessive fees from Wall Street lawyers and bankers, prepay debt without penalties, and most importantly, Tri-County Electric Co-op will not lose ownership of member accounts receivables to bond holders. The CoBank financing will allow Tri-County Electric Co-op to spread the extraordinary costs and expenses attributable to Uri and the bankruptcy over a period of 25 years, and we will continue to develop ways to lessen the impact to members. Tri-County Electric Co-op will be able to utilize CoBank's retired patronage capital to reduce the debt before maturity, and the Tri-County Electric Co-op Board of Directors will continue to govern all aspects of our co-op operations without bond holder requirements that are included in securitization. The Tri-County Electric Co-op Board of Directors chose to finance bankruptcy-related costs with CoBank and the Farm Credit System because it provides the lowest cost of all options and retains flexibility, without any exposure to Wall Street. We believe this models the sixth cooperative principle of “Cooperation Among Cooperatives” and adheres to Tri-County Electric Co-op’s mission of “taking care of our member-owners.”
The CoBank financing will allow Tri-County Electric Co-op to spread the extraordinary costs and expenses attributable to Uri and the bankruptcy over a period of 25 years, and we will continue to develop ways to lessen the impact to members. We closed on our financing in November, shortly before the bankruptcy plan became effective in December.
Tri-County Electric Co-op held a virtual town hall meeting for the members on November 21, 2022, explaining our financing plan and its impact to members. Notice of the virtual town hall meeting was in the November Texas Co-op Power magazine. A recording of the town hall is available here. Additionally, Tri-County Electric Co-op held a virtual rate hearing on December 12, 2022 and notice of the meeting was in the December Texas Co-op Power magazine. A recording of the rate hearing is available here.
Looking Ahead at Power Costs
As a result of the Brazos bankruptcy, Tri-County Electric Co-op's all-requirements contract with Brazos will be amended to provide that effective March 1, 2023, we will procure our own power supply independent from Brazos. This freedom allows Tri-County Electric Co-op to purchase power directly from any of the more than 300 generating plants and other power traders that sell power in the ERCOT market.
For decades, Tri-County Electric Co-op has been buying large quantities of power from Brazos while never receiving the benefit of the economies of scale appropriate to the size of our load. As the third largest cooperative in Texas with a sizable load, Tri-County Electric Co-op should attract good rates for the members while eliminating the subsidies to others. The bankruptcy process has been the only way for Tri-County Electric Co-op to seek fairness in these rates and to maintain local control of our power supply costs which represent over 75% of the co-op's expenses.
By directing our own power purchases, Tri-County Electric Co-op should receive favorable power rates, which will flow directly to you, the members. For example, in 2018, the Tri-County Electric Co-op Board of Directors did a study of Brazos rates and determined there were millions of dollars per year that you as rate payers were paying to subsidize the other Brazos cooperatives. The Tri-County Electric Co-op board formally asked to exit our all-requirements contract with Brazos and received an exit cost of approximately $1 billion. Now, we are able to pay our portion of the Brazos Winter Storm Uri costs and exit Brazos for $477 million.
We firmly believe the ability to buy competitively in the power market will allow Tri-County Electric Co-op to mitigate the impacts of the charges that our members have seen on their 2022 bills and will see on their future monthly bills. Because we will be able to reduce our power purchase costs, it will lower the costs that are passed through to our members.