The financial carnage stemming from the massive Texas blackouts that knocked out power to more than 4.3 million customers and lead to countless deaths has only just begun.

Early Monday morning, Brazos Electric Power Cooperative, the state’s largest generation and transmission cooperative, filed for Chapter 11 bankruptcy, saying it wasn’t able to pay ERCOT $2.1 billion in unexpected charges.

On Friday, ERCOT revoked Griddy Energy’s rights to participate in its retail market for nonpayment. The ISO told market participants that Griddy’s customers, who were hit with massive bills during the outages because of the retailer’s wholesale-indexed rates, were being transferred to other electric providers.

That same day, the grid operator told qualified scheduling entities and holders of congestion revenue rights that the ISO would be unable to pay $1.3 billion in settlement invoices because other participants were short with their payments.

“Historically large invoices are going out and people are having a challenge paying them,” ERCOT CEO Bill Magness testified before Texas legislators last week. (See Texas Lawmakers Dig into Power Outages.)

“While we recognize these are extraordinary circumstances, ERCOT will continue to operate under its long-standing protocols,” spokesperson Leslie Sopko said. “The protocols are designed to ensure continuity of operations, which they have successfully done and continue to do.”

Beth Garza, a senior fellow with the R Street Institute and the former director of ERCOT’s Independent Market Monitor, said the market turmoil is a logical progression following the Feb. 14-19 energy crisis that begat a water crisis when frozen pipes burst and water systems were compromised.

“The invoices are coming due, the financial strain and limits at ERCOT are being felt and attempted to be managed,” Garza said Friday during an R Street webinar. “We’ve already dropped two shoes. The third shoe is the final outcome, the outfall of this situation. We’re in the middle of figuring out what the financial [implications] are.”

Not surprisingly, Fitch Ratings has placed all retail and wholesale utilities within the ERCOT footprint on “rating watch negative.” The ratings agency last week cited the sector’s “potentially severe, but uncertain, financial impact” of operating challenges, market dislocation and winter weather.

At issue is ERCOT’s $9,000/MWh cap for wholesale prices, designed to incentivize generation during scarcity conditions. After staff fixed a software glitch on Feb. 16 that kept prices below the cap, they stayed at the maximum until the ISO returned to normal operations on Feb. 19. ERCOT also imposes collateral requirements calculated by using the previous 14-day prices.

For Brazos Electric, that resulted in collateral calls of up to $1.6 billion, far above its typical credit requirement for market participation of $40 million to $83 million.

“The consequences of these prices were devastating,” Brazos Electric CEO Clifton Karnei said in the company’s bankruptcy filing. Formed in 1941, the cooperative’s service territory includes 68 counties from Houston to the Texas Panhandle.

The cooperative has a coal purchase-power agreement and its own gas plants and said its supply strategy relied on securing additional energy through the ERCOT’s normally low-priced market (about $25/MWh in recent years). Four days of maximum cap prices resulted in the wholesale market incurring $55 billion in charges over a seven-day period, about the same as what ordinarily occurs over four years, Brazos said.

Karnei said the Waco-based cooperative’s share of those charges are estimated at $2.1 billion, compared to last year’s total power cost to members of $774 million. The $2.1 billion is more than the amount of Brazos’ total outstanding secured debt.

Karnei, the cooperative’s CEO since 1997, resigned from ERCOT’s Board of Directors on Feb. 25. The grid operator has now lost nine of its 16-person board, with Austin Energy General Manager Jackie Sargent’s resignation Saturday and PUC Chair DeAnn Walker’s on Monday. (See related story, PUC’s Walker Steps Down from Commission.)

CoServ Electric, one of Brazos Electric’s 16 member cooperatives, said the latter’s bankruptcy is not expected to affect delivery of electricity to CoServ members.

“Nor do we anticipate any immediate or short-term changes to the wholesale rates or the overall cost of the electricity we provide to our members,” the cooperative said.

Also on Monday, Texas Attorney General Ken Paxton filed a lawsuit against Griddy, charging the retailer with “blatantly contradict[ing] … promotional representations as it auto-debited hundreds of dollars from Texans’ checking accounts daily.”

“Griddy was fully aware of the reality of the risk in its pricing scheme — sky-high energy rates at a time when consumers are the most vulnerable,” the lawsuit says.

Paxton, who has also launched an investigation into ERCOT, said in a statement that, “As the first lawsuit filed by my office to confront the outrageous failure of power companies, I will hold Griddy accountable for their escalation of this winter storm disaster.”

Griddy has drawn outsized attention from lawmakers and the public over bills that have reached five figures in some instances, given its 29,000 customers in a market with 26 million.

“ERCOT took our members and have effectively shut down Griddy,” the company said. “It decided to take this action against only one company that represents a tiny fraction of the market and that shortfall.”

Griddy’s customers are being moved to TXU Energy or Reliant Energy, ERCOT’s two largest electric retailers, thanks to an emergency PUC order. (See Texas PUC Turns Focus to Customer Bills.)

Legislators Work to Revamp PUC

Following two days of hearings last week by both the Texas Senate and House, the state’s lawmakers have wasted little time introducing proposed reforms.

Rep. Lyle Larson (R) and Sen. José Menéndez (D) have filed identical bills (HB2381 and SB853) that would create a Texas Energy and Communications Commission, consolidating the Public Utility Commission, which regulates electricity, water and communications, with the Railroad Commission, which oversees the oil and gas industry.

Sen. Judith Zaffirini (D) filed legislation (SB857) that would require the PUC’s three commissioners be elected rather than appointed by the governor, as is currently the case.

Legislators pilloried Walker during last week’s hearings, calling for resignation and the rest of the three-person commission over what they said was a lack of public responsibility. (See “Legislators Focus on PUC’s Walker,” Texas Lawmakers Dig into Power Outages.)

Rep. Michelle Beckley (D) has filed a bill (HB1965) directing the PUC to develop a process for obtaining reserve generation “as appropriate to prevent blackout conditions.” According to the measure, the commission should estimate the capacity needed and mechanisms for “equitably sharing” the contracted reserves’ costs, with ERCOT or another independent organization contracting with generators for the emergency generation.

Other lawmakers have filed bills that would require ERCOT’s CEO and its Board of Directors’ members be Texas residents and that utilities file documentation at the PUC with details on local distribution systems.