⚡️New Chapter 11 Bankruptcy Filing - Griddy Energy LLC⚡️

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Griddy Energy LLC

Sooooooo this one was predictable. The writing was on the wall a few weeks ago and we noted in “💥Is Texas F*cked?💥,” that Griddy Energy LLC was a likely bankruptcy candidate.* On Sunday, we noted how recent PUCT/ERCOT decisions to extend the deadline “…for electric retailers to dispute the ridonkulous liabilities imposed upon them after the now-infamous Texan storm” — liabilities that already claimed Just Energy Group Inc.($JE) and Brazos Electric Power Cooperative Inc. as victims — might buy time for certain other players in the stack to figure out their futures. By then, however, it was already too late for Griddy. On February 26, 2021, ERCOT forced the mass transition of Giddy’s customers to other electricity providers.

Griddy’s whole business model was passing through wholesale pricing sans mark-up to 29,000 retail end customers in exchange for a monthly fixed fee of $9.99. Through this model, Griddy claims to have saved its customers more than $17mm since 2017. Griddy argues that at no point since its inception was its model targeted as problematic by the PUCT. PUCT, after all, granted Griddy’s license.

That all obviously changed with February’s big storm. Per the debtor:

During the winter storm in Texas in February 2021, Griddy and its customers suffered as a result of (a) inaccurate information from ERCOT about the preparedness of the electricity grid for the 2020-2021 winter season, (b) the decision by the PUCT to order electricity prices be set to $9,000 per megawatt hour (“MWh”), and (c) ERCOT’s decision to hold electricity prices at $9,000 per MWh for 32 hours after firm load shed had stopped. Prior to the PUCT order, the real-time electricity price had reached $9,000 per MWh for a total of only 3 hours since 2015. In contrast, after the PUCT order, the electricity price was set to $9,000 per MWh for 87.5 hours between February 15, 2021 and February 19, 2021.

This obviously creates a whole host of issues when, in turn, you’re only getting $9.99 per customer per month (plus other passthrough expenses) for a total of $289.7k in revenue a month. Prior to the storm, Griddy was solvent. As of the petition date, it has only $1.448mm of pre-petition debt outstanding (due to Macquarie Investments US Inc.). Griddy obviously blames the reversal of that fortune on ERCOT’s missteps and poor planning. Per the debtor:

Prior to the mid-February winter storm event, Griddy was solvent. As discussed above, the failures of ERCOT and resulting actions taken by the PUCT during the winter storm event resulted in Griddy’s loss of all of its customers and forced Griddy to file this case. The winter storm event also left Griddy in an untenable position – engage in aggressive collection actions against customers for exceedingly high prices for wholesale electricity and ancillary services (which is not its preference) and fight baseless lawsuits – or file for bankruptcy and distribute its remaining cash in an orderly manner.

Be that as it may, Griddy now owes a contingent and disputed $29mm nut to ERCOT — its largest general unsecured creditor. Its customers — who generally tend to be on the lower end of the socioeconomic spectrum — have bills far in excess of historical norm and expectation. So now what?

Griddy is basically flicking the bird to ERCOT (🖕):

In the weeks since the winter storm event, Griddy has created a chapter 11 plan whereby (i) Macquarie would compromise a portion of the remaining amount of money owed to it by Griddy for the benefit of Griddy’s other creditors, (ii) Griddy would give former customers with unpaid bills releases in exchange for such customers’ releases of Griddy and certain other parties, (iii) other general unsecured creditors would share pro rata in remaining available cash, and (iv) upon emergence, a plan administrator would take over ownership of Griddy and, in his or her discretion, pursue causes of action, whether against ERCOT for potential preference claims, fraudulent transfers or other claims related to the winter storm event, or otherwise. Griddy has filed its proposed chapter 11 plan, disclosure statement and related motions concurrently herewith. Griddy intends to seek confirmation of its proposed chapter 11 plan on as expedited basis as possible.

“Certain other parties” no doubt includes Macquarie.

All of this seems so strangely … American. Thousands of innocent people sign up for a product that they don’t fully understand most likely thinking that there are systems in place to protect them. Turns out the systems are broken: thousands of innocent people lose electricity for days and ultimately get billed up the wazoo and, naturally, nobody wants to take any responsibility for that. Lawsuits commence. Bankruptcies ripple through the area.** Meanwhile, the lenders do everything in their power to shed any and all liability risk. God bless America.

*We said we “smell a chapter 7 filing” which, it turns out, was perhaps a bit to flippant. While the spirit of the comment is correct in that there is no future for the company as a going concern, we neglected to consider some of the benefits of a chapter 11 filing including, among other things, the sought-after releases.

**One interesting side note — given that this is a uniquely Texan fact pattern — is that it took this catastrophe to finally hour-up some Texas-based lawyers rather than enrich some Chicago or New York attorneys. Putting aside Just Energy Group Inc. (represented by Kirkland & Ellis LLP), Brazos Electric Power Cooperative Inc. is represented by Norton Rose Fulbright and Griddy is represented by Baker Botts LLP. The lender, Macquarie, is counseled by Haynes and Boone LLP and ERCOT is represented by Munsch Hardt Kopf & Harr P.C. The local folks must seriously be thinking “it’s about time.”

Date: March 15, 2021

Jurisdiction: S.D. of Texas (Judge Isgur)

Capital Structure: $15mm Borrowing Base Facility ($1.448m outstanding)

Company Professionals:

  • Legal: Baker Botts LLP (Robin Spigel, David Eastlake, Chris Newcomb, Jacob Herz)

  • Claims Agent: Stretto (Click here for free docket access)

Other Parties in Interest:

  • Pre-petition Lender: Macquarie Investments US Inc.

    • Legal: Haynes and Boone LLP (Kelli Norfleet, Arsalan Muhammad)

  • ERCOT

    • Legal: Munsch Hardt Kopf & Harr P.C. (Kevin Lippman)

🔋New Chapter 11 Bankruptcy Filing - 1515 GEEnergy Holding Co. LLC🔋

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1515 GEEnergy Holding Co. LLC

February 14, 2019

Though it took a backseat to the overall oil and gas downturn of a few years ago, the power market has also experienced its share of distress and bankruptcy of late: Illinois Power, ExGen Texas Power, Panda Temple Power, FirstEnergy, Westinghouse, and GenOn are just a few of the power companies that found themselves in a bankruptcy court. Now we can add 1515-Geenergy Holding Co. LLC and BBPC, LLC d/b/a Great Eastern Energy, providers of (i) natural gas and electricity to customers in New York, New Jersey and Massachusetts and (ii) electricity to customers in Connecticut, to the list. (together, the “Debtors”).

What we love about bankruptcy filings is that, unbeknownst to many, they often provide a pithy overview of an industry that is highly informative without getting too into the weeds. Indeed, in the Debtors chapter 11 papers, they provide a solid history of the decades-long process of deregulated power provision. In summary (and per the debtors):

  • In 1978, Congress passed the Public Utility Regulatory Policies Act (“PURPA”), which laid the groundwork for deregulation and competition by opening wholesale power markets to non-utility producers of electricity.

  • Following this, in the 80s and 90s, state legislatures passed laws designed to allow competitive retail sale and supply in the nat gas markets.

  • Congress passed the Energy Policy Act of 1992 which specifically promoted greater competition in the bulk power market. This began to de-monopolize the utility industry by allowing independent power producers equal access to the utilities’ transmission grid.

  • By 1996, FERC implemented Orders 888 and 889, which were intended to remove impediments to competition in wholesale trade and bring more efficient lower-cost power to the nation’s electricity customers.

  • President George W. Bush later signed into law the Energy Policy Act of 2005, which decreased limitations on utility companies’ ability to merge or be owned by financial holdings / non-utility companies. This led to a wave of mergers and consolidation within the utility industry.

  • Today, more than 20 states have at least partially deregulated electricity markets whereby energy customers may choose between their incumbent local utility and an array of independent, competitive suppliers. This is commonly referred to as a “deregulated” or “competitive” power market.

All of this, of course, created opportunity for entrepreneurs looking to take advantage of newly opened markets. That’s where the Debtors come in. BBPC started serving nat gas to customers in 2000, leveraging its relationships with various commodity supply companies, pipelines and local utility companies for the purchase, delivery and distribution of power and natural gas to their customers. The debtors acquire customers via various marketing channels, including, among other things, an indirect sales team, a network of hundreds of independent brokers. The debtors have approximately 49k commercial customers and 5k residential customers.

So, why is the company now in bankruptcy? Per the Company:

The competitive retail electric power industry is characterized by high degrees of both fragmentation, competition, and customer attrition because power providers compete primarily on price and have little else available to differentiate their products and services. Particularly in years with high volatility in weather and energy prices, customers paying high electricity and gas bills will tend to seek out other competitive retail electric providers, resulting in higher attrition rates. Also, larger independent retail energy providers have been active in acquiring customer books of their competitors.

More than that, though, is the fact that customers are no longer f*cking idiots about how they get electric and gas service. Indeed, the company notes that they are “becoming more and more sophisticated.” It’s amazing what competition and the democratization of information that’s attendant thereto can do for consumers. With more options and pricing plans to choose from, the debtors have been feeling the effects of price compression. Moreover, this bankruptcy is Google’s damn fault. Per the company:

Small consumers are also using energy-efficient appliances and devices, adopting green building technologies, and taking other actions that help protect the environment, but also lower demand for energy products.

All of these factors converged to decrease the Debtors’ revenue and cause them to default on certain of their obligations.

We’re serious. Among the PETITION team, we own a number of Nest and other smart energy-efficient devices.

Anyway, all of this led to the debtors defaulting under their ~$60mm prepetition credit agreement with Macquarie Investments US Inc., which, after several months of forbearances meant to give the debtors an opportunity to refi out Macquarie and/or sell the company, expired under their own terms. Needless to say, the debtors weren’t successful and have filed the chapter 11 to prevent Macquarie from exercising remedies and afford themselves an opportunity to pursue a sale of substantially all of their assets.

  • Jurisdiction: D. of Delaware (Judge Carey)

  • Capital Structure: ~$60mm secured credit facility (Macquarie Investments US Inc.) + $30.6mm in collateralized LOCs.

  • Professionals:

    • Legal: Klehr Harrison Harvey Branzburg LLP (Morton Branzburg, Dominic Pacitti, Michael Yurkewicz) & (local) McLaughlin & Stern LLP (Steven Newburgh)

    • Financial Advisor: GlassRatner Advisory & Capital Group LLC

    • Claims Agent: Omni Management Group LLC (*click on the link above for free docket access)

  • Other Professionals: