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March 15, 2021 – Griddy Energy LLC (“Griddy” or the “Debtor”) filed for Chapter 11 protection with the U.S. Bankruptcy Court in the Southern District of Texas, lead case number 21-30923 (Judge Isgur). The Debtor, a provided of retail electric service to homes and businesses in Houston and various other locations in Texas, is represented by David R. Eastlake of Baker Botts LLP.
The Debtors’ lead petition notes between 1 and 50 creditors; estimated assets between $1.0mn and $10.0mn; and estimated liabilities between $10.0mn and $50.0mn. Documents filed with the Court list the Debtors’ three largest unsecured creditors as (i) ERCOT ($29.0mn contingent, unliquidated, disputed energy claim), (ii) CenterPoint Energy, Inc ($1.2mn transportation charges claim) and (iii) CenterPoint Energy, Inc.($1.2mn transportation charges claim).
The Debtor, actually headquartered in Westbury Connecticut, used a subscription model whereby customers pay the wholesale cost of energy plus a "$9.99 monthly membership fee regardless of the fluctuations in price of electricity."
In an emphatic message to customers to NOT pay their bills (which will certainly be heard by other electricity consumers and their suppliers), the gritty Debtor uses its homepage to advise: "Under our bankruptcy proposed plan, a key feature is to give releases to former customers with unpaid electricity bills."
Driving home its attack on ERCOT, the Debtor (which has already had its customers transitioned to new providers by ERCOT), continues to advise its former customers: "Many companies have already reported or will report massive losses due to the extreme circumstances last week. While Texas used to be able to boast hundreds of providers and thousands of plans, that freedom of choice could drop to a handful of the traditional, big players. Texas was a trailblazer in deregulation, but it seems we might be going back to the giant monopolies dictating the rules.
If you think this loss of choice and innovation is harmful to the future of energy, let your voice be heard. This doesn’t just affect Griddy and our members. It can have lasting impact for years to come. Email or call the PUCT or your local representatives and demand that they create a fair marketplace for innovation and choice."
In a press release announcing the filing, Griddy that: “has filed a voluntary petition for relief under Chapter 11 of the U.S. Bankruptcy Code in the Southern District of Texas, together with a proposed plan of reorganization – a key feature of which is to give releases to former customers with unpaid electricity bills. Griddy sought court protection after financial devastation related to the actions of the Electric Reliability Council of Texas ('ERCOT') during and after Winter Storm Uri.
Griddy did not profit from the winter storm crisis. Griddy provides customers access to real-time wholesale electricity prices, allowing them to monitor and adjust electricity usage. Griddy neither influences nor controls the price of electricity; prices are passed on to customers without mark-up. Griddy only earns the same $9.99 monthly membership fee regardless of the fluctuations in price of electricity.
The Company also will be seeking approval of its proposed disclosure statement and confirmation of its chapter 11 plan of reorganization within 80 days from filing.
The Debtors’ CEO Michael Fallquist commented further: “The actions of ERCOT destroyed our business and caused financial harm to our customers. Our bankruptcy plan, if confirmed, provides relief for our former customers who were unable to pay their electricity bills resulting from the unprecedented prices. ERCOT made a bad situation worse for our customers by continuing to set prices at $9,000 per megawatt hour long after firm load shed instructions had stopped. Our customers paid 300 times more than the normal price for electricity during this period."
The Debtor's Co-founder, Gregory Craig, added "We built Griddy to improve an antiquated industry by giving our customers access to wholesale pricing, real-time data and the ability to help balance the grid while lowering their own bills. Our model worked in August 2019 and would have worked in February 2021, had the grid not failed and the regulators not intervened. No retail energy provider or consumer should have to forecast and protect against such extreme and unforeseeable circumstances. We firmly believe in our model but, in order for it to be successful, the grid has to function properly, and prices have to be set by market forces. The actions of ERCOT caused our customers to unnecessarily suffer and caused irreparable harm to our business."
The Disclosure Statement [Docket No. 23] provides, “[t]he Plan provides for a liquidation and orderly winddown in a manner that would result in, among other things, (i) mutual releases between the Debtor and the other Released Parties, on the one hand, and the participating former customers, on the other hand, thereby providing certainty to such former customers that unpaid amounts incurred, including those amounts incurred by such customers for the period February 15, 2021 through and including February 19, 2021 when the Public Utilities Commission of Texas imposed the $9,000 per MWh price for wholesale power, will not be collected by the Debtor or its successor or the other Released Parties; (ii) recovery and distribution to the holders of Other General Unsecured Claims from any Available Cash and the net proceeds, if any, from any causes of action pursued by the Plan Administrator. In addition, the Prepetition Secured Lenders have agreed to ‘give up’ a portion of their recoveries ($600,000) for the benefit of the Debtor and its Estate. The Debtor believes that this ‘give up’ by the Prepetition Secured Lender is a material benefit that will inure to its Estate.
The liquidation and orderly winddown provided for in the Plan and described herein will result in the distribution of the Debtor’s assets to its creditors consistent with the priorities set forth in the Bankruptcy Code. The Plan provides, among other things that:
- the Debtor’s secured lender will, for the benefit of the Debtor’s estate: (a) forego receipt of 40% of the remaining aggregate principal amount outstanding under the Debtor’s prepetition credit agreement (i.e., consensually agree to ‘give up’ $600,000 of the amount owed to it by the Debtor in favor of other creditors in accordance with the terms of the Plan) and (b) receive interest at the non-default contract rate (rather than seeking to collect default interest from the Petition Date to the Effective Date);
- holders of Customer Claims (i.e., former customers of the Debtors) will have the opportunity to receive releases from the Debtor and the other Released Parties for all claims, including, for unpaid amounts owed by such former customer for unpaid amounts owed for the electricity and related fees, taxes, expenses and other costs due as a result of Winter Storm Uri in exchange for such former customers giving the Released Parties a release of all claims the customer may have against the Released Parties. Any former customer that does not wish to exchange releases and that timely and properly files an unsecured nonpriority claim against the Debtor by the Bar Date in accordance with the Bar Date Order will be treated as Other General Unsecured Creditors. Any former customer that does not wish to exchange releases and does not file timely and properly file a proof of claim against the Debtor shall not have any Class 4 Claims (Other General Unsecured Creditors) or Class 5 Claims (Customer Claims) against the Debtor;
- Other General Unsecured Creditors will receive the Available Cash of the Debtor; and
- the Debtor will appoint a plan administrator (the ‘Plan Administrator’) and, upon the Effective Date, the Liquidating Debtor will enter into a Plan Administrator Agreement with the Plan Administrator and the sole interest in the Liquidating Debtor will vest in the Plan Administrator. The Plan Administrator will act as a fiduciary and will have full authority to administer the liquidation and wind down of the Debtor under the provisions of the Plan, including to: (i) make Distributions to holders of Claims set forth in the Plan; (ii) object to, dispute, compromise or settle the amount, validity, priority, treatment or Allowance of any Claim; (iii) sell, abandon or dispose of any remaining property of the Debtor; and (iv) pursue any Causes of Action consistent with the provisions of the Plan.”
The following is a summary of classes, claims, voting rights and expected recoveries (defined terms are as defined in the Plan and/or Disclosure Statement):
- Class 1 (“Prepetition Lender Claims”) is impaired and entitled to vote on the Plan. The aggregate amount of claim is $1,448,937.58 and expected recovery is [ ]%. Holders shall receive pro rata share of the Prepetition Lender Distribution.
- Class 2 (“Other Secured Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan.
- Class 3 (“Priority NonTax Claim”) is unimpaired, deemed to accept and not entitled to vote on the Plan. The aggregate amount of claim is $0 and expected recovery is 100%. Holder shall receive Cash in an amount equal to such Allowed Priority Non-Tax Claim on the later of the Effective Date and the date such Allowed Priority Non-Tax Claim becomes an Allowed Priority Non-Tax Claim, or as soon thereafter as is practicable.
- Class 4 (“Other General Unsecured Claims”) is impaired and entitled to vote on the Plan. Holder shall receive pro rata share of the Class 4 Distribution.
- Class 5 (“Customer Claims”) is impaired and entitled to vote on the Plan. Holder has been paid by the Debtor prior to the Effective Date or agrees to a different treatment:
- in full satisfaction, settlement, and release of, and in exchange for its Customer Claim, each Participating Customer will grant and receive the Customer Releases as set forth in Section 12.10 of the Plan; or
- if a Customer Claim is held by a Non-Participating Customer, such holder will not give or receive the Customer Releases and: (a) solely if the Non-Participating Customer timely and properly filed an unsecured nonpriority proof of claim against the Debtor by the applicable Bar Date in accordance with the Bar Date Order, such Customer Claim will not be an Allowed Class 5 Claim and, instead, shall be classified as an Other General Unsecured Claim and treated for all purposes under the Plan as an Other General Unsecured Claim; or (b) solely if the Non-Participating Customer did not timely and properly file an unsecured nonpriority proof of claim against the Debtor by the applicable Bar Date in accordance with the Bar Date Order, such Customer Claim shall not be treated as either a Class 5 Claim or a Class 4 Claim.
- Class 6 (“Intercompany Claims”) is impaired, deemed to reject and not entitled to vote on the Plan.
- Class 7 (“Existing HoldCo Interests”) is impaired, deemed to reject and not entitled to vote on the Plan.
- Plan and Disclosure Statement Objection Deadline: May 21, 2021
- Voting Deadline: May 21, 2021
- Combined Hearing on Disclosure Statement and Plan: June 2, 2021
Events Leading to the Chapter 11 Filing
The Disclosure Statement provides: “Griddy is a retail electricity provider (‘REP’) in Texas which provided its customers the ability to purchase wholesale electricity with no mark-up. Griddy’s business model was simple. For a fixed monthly fee of $9.99, each customer had access to wholesale electricity costs with no mark-up.
Winter Storm Uri brought extreme cold weather to Texas. Load on the power grid climbed to winter records and a host of other factors led to generation outages and forced the Electric Reliability Council of Texas (‘ERCOT’) to shed electric load, in the form of rolling blackouts, in order to match the available generation on the grid. On February 15, 2021, in response to the electric load shedding required to balance a grid experiencing unprecedented outages, the Public Utilities Commission of Texas (‘PUCT’) adopted an order instructing ERCOT to set the real time settlement point price for power at the high offer cap of $9,000 per MWh. This order went into effect immediately and stayed in effect until February 19, 2021, representing a total duration of 87.5 consecutive hours. Although ERCOT rescinded load shed instructions at 11:55 pm on February 17, 2021, the price cap was not removed by it for another 33 hours. Potomac Economics, the Independent Market Monitor, has now reported in a letter to the PUCT that ERCOT’s failure to remove the price cap was 'inappropriate pricing intervention' that resulted in $16 billion in additional costs.
As of the Petition Date, no action had been taken by regulators in connection therewith. Prior to February 2021, Griddy’s customers paid an average rate of $0.098 per kilowatt hour (‘kWh’), representing significant savings to its customers. Griddy’s business model provided customers with transparency regarding real-time electricity prices, forecasted electricity prices, and their energy usage and billings, which allowed its customers to control how much they spent on electricity.
During Winter Storm Uri, Griddy and its customers were subject to the extreme electricity prices resulting from the PUCT order. Griddy had to procure power for its customers at those elevated rates and pass those costs to its customers. Over the 87.5 hours while the $9,000 per MWh price was imposed, Griddy incurred significant debt to, among others, ERCOT, for the procurement of power for its customers. Many of Griddy’s customers stopped paying their bills, and, on February 21, 2021, the PUCT issued a press release related to emergency actions to protect Texas electricity customers which 'strongly urged' REPs to delay billing and collections for residential and small commercial customers, including invoices with estimated meter reads.
ERCOT, however, continued to send Griddy multi-million dollar invoices for the power procured for the benefit of its customers during the storm and continued to make multi-million dollar collateral demands pursuant to ERCOT Protocols. Griddy earned only a fixed fee of $9.99 per month per customer regardless of whether the wholesale cost of electricity was high or low, and it also had little to no incoming funds at that point to pay these bills. As a result, ultimately, Griddy was unable to pay ERCOT for the outstanding charges or meet ERCOT’s collateral call demands. Griddy had also purchased physical electricity for the benefit of its customers through its secured lender. With respect to amounts owed in connection therewith, its secured lender exercised its rights under its secured credit agreement with Griddy and applied amounts from Griddy’s bank accounts to satisfy the outstanding amounts due to the lender. At that point, while the offset greatly reduced the amount under the secured facilities, Griddy’s cash on hand was also greatly reduced.
On February 26, 2021, ERCOT notified Griddy that it was in default and forced a mass transition of Griddy’s customers to providers of last resort. As a result, Griddy was left with no customers and little to no incoming payments for outstanding accounts receivable. To that end, as of the Petition Date, Griddy had outstanding accounts receivable balances from its customers totaling approximately $29 million and ERCOT has sent Griddy bills in excess of $29 million. Accordingly, Griddy was left in a position where it had no choice but to file this chapter 11 case and try to maximize value for the benefit of its creditors while balancing the desire to give its former customers relief from the uncertainty of being subject to collection actions as a result of the extreme wholesale electricity prices from the winter storm event.”
About the Debtor
According to the Debtor: “The Debtor provided retail electric service to homes and businesses in Houston and various other locations in Texas by purchasing power at the market rate and arranging delivery on transmission and distribution lines thereby connecting purchasers directly to the wholesale price of electricity. The Debtor’s primary office is located in Westport, CT.
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