As the Biden Administration finds its stride in the first 100 days, we are starting to see movement on several of its key priorities. Chief among them: pivoting to a clean energy economy. A campaign that promised investments of up to $2 trillion in alternative energy saw progress this week, as House Democrats, led by Energy and Commerce Committee Chairman Frank Pallone, Jr. (D-NJ), Environment and Climate Change Subcommittee Chairman Paul Tonko (D-NY), and Energy Subcommittee Chairman Bobby Rush (D-IL), announced a down payment on those hopes with the introduction of the CLEAN Future Act. In our previous K&L Gates alert from January, our team discussed how the U.S. maritime industry should expect the issues of clean energy investment and climate resiliency to rise to the very top of the White House’s legislative agenda. This week’s rollout of the CLEAN Future Act further confirms the importance of these priorities, and the far-reaching implications of the reforms offered for the transportation and maritime sectors.
On 1 March 2021, Brazos Electric Power Cooperative, Inc. (“Brazos”) commenced a chapter 11 bankruptcy case in the United States Bankruptcy Court for the Southern District of Texas. Brazos is a Texas-based non-profit electric cooperative corporation that provides wholesale electricity to its members, which, in turn, provide retail electricity to Texas consumers. Due to the freezing of essential electric generation and natural gas pipeline equipment during the historic winter storm that blanketed Texas in mid-February 2021 and the resulting spike in wholesale electricity prices, Brazos received approximately $2.1 billion in settlement charge invoices from the Electric Reliability Council of Texas (“ERCOT”). These invoices, promptly issued during and immediately following the storm, required payment within a matter of days. In a declaration accompanying the voluntary bankruptcy petition, Mr. Clifton Karnei, Brazos’ Executive Vice President and General Manager, described Brazos’ position following the sudden, dramatic spike in electricity costs as a “liquidity trap that [Brazos] cannot solve with its current balance sheet.”
Brazos’ first-day pleadings explain that its financial position and need for bankruptcy protection directly result from the effects of February’s winter storm on Texas’ electricity market, specifically on the relationship between Brazos and ERCOT. ERCOT serves a clearinghouse role in one of Texas’ three main energy grids, the Texas Interconnection, which covers 213 of the 254 counties in the state, and is responsible for procuring energy on behalf of its members while also administering the reliable operation of the wholesale electricity market. To buy and sell wholesale electricity, as Brazos does, ERCOT requires market participants to have sufficient available credit (calculated using a metric based on the participant’s credit limit plus a percentage of tangible net worth, among other factors) to support such participant’s total exposure. The effects of February’s winter storm on the Texas power grid caused prices to spike to $9,000 per megawatt-hour. The cut-off cap was set on 16 February by ERCOT as demand soared while the state’s electricity supply declined. For comparison, ERCOT’s monthly prices for wholesale electricity from November 2020 through January 2021 ranged between $21 to $29 per megawatt-hour. On 16 February, and each of the succeeding three days, ERCOT made collateral calls to Brazos for hundreds of millions of dollars each day, for a total of approximately $1.5 billion in collateral calls. Brazos filed a notice of force majeure on 25 February, informing ERCOT that it would not satisfy the invoices due to an event outside of Brazos’ reasonable control. Brazos filed for bankruptcy protection less than one week later.
As of the petition date, Brazos estimates the total principal amount of its funded debt obligations to be approximately $2.04 billion, with $1.81 billion of such debt being secured promissory notes financed through the Federal Financing Bank. Brazos has fully drawn its $500 million unsecured revolving facility with Bank of America, N.A. and other lenders. Mr. Karnei states that Brazos’ goals in commencing the chapter 11 case are to preserve its ongoing business operations and propose a reorganization plan to maximize creditors’ recovery. The first day hearing in front of Judge David Jones is scheduled for 3 March at 2:00 p.m. (EST).
Fossil-based natural gas may be headed for a reckoning, at least in Washington State. Not long ago, natural gas was seen by many as the key “bridge fuel” necessary to transition our society away from oil and coal. Natural gas has its upsides; most significantly, it burns more efficiently and emits fewer pollutants than coal.1 Yet burning natural gas still emits greenhouse gases (GHG), including methane, a potent climate pollutant. According to EPA, methane accounts for approximately 10% of the GHG emissions in the United States.2 That is a problem for states like Washington that have called for zero carbon emissions in the power sector by 2045 and have also enacted laws aimed at reducing GHG emissions throughout other sectors.Read More
Amid the headline-grabbing events of 6 January 2021, the U.S. Department of Treasury released final regulations under Code Section 45Q. Code Section 45Q provides for a U.S. federal income tax credit at varying rates to taxpayers that participate in various aspects of the process of sequestering carbon oxide and disposing of it in secure geologic storage, use it as a tertiary injectant in a qualified enhanced oil or natural gas recovery project, or utilize it in certain processes.
On 21 December 2020, the shortest day of the year in North America, the U.S. Congress passed a historic stimulus package. Among its more than 5000 pages, the bill includes important, if not quite historic, clean energy-related provisions ranging from new and extended tax incentives to government programs for research and development. Assuming the legislation becomes law, a new day for U.S. carbon capture, offshore wind, and many more renewable energy technologies may dawn.
A biweekly update on clean technology applications, distributed energy resources, and other innovative technologies in the renewable energy and clean transport sector.
There is a lot of buzz around clean technology, distributed energy resources (DERs), microgrids, and other technological innovations in renewable energy and clean transport industries. As these innovations develop, energy markets will undergo substantial changes to which consumers and industry participants alike will need to adapt and leverage. Every other week, K&L Gates’ The Energizer will highlight emerging issues or stories relating to the use of DERs, energy storage, emerging technologies, hydrogen, and other innovations driving the energy industry forward.
IN THIS ISSUE:
- FERC Rolls Back ISO New England Tariff Incentivizing New Generation and Storage Projects
- Coalition of Labor and Climate Groups Voice Support for the “American Nuclear Infrastructure Act”
- Sidewalks out of Turbine Blades: Sustainability of Renewables’ Afterlife