A Case Study - Retail Electric Provider Bankruptcies
Texas Commercial Energy (the "Company" or "TCE") filed for bankruptcy
protection on March 6, 2003 in the Southern District of Texas following a sudden and
dramatic rise in the price of wholesale electricity. TCE is a Retail Electric Provider
("REP") serving commercial and light industrial customers in the region of Texas
administered by the Electric Reliability Council of Texas ("ERCOT"). TCE acquires
electricity on the wholesale market and then resells it on a retail basis to its customers.
TCE enters into 12, 24 or 36 month contracts with its customers to supply electricity at a
fixed price. When the wholesale price of power exceeded the price TCE was charging
the result was the inability of TCE to pay its bills as they came due. At the time of the
bankruptcy, TCE was purchasing almost its entire supply of energy on ERCOT's
"Balancing Energy" market as opposed to locking in a steady supply of power at a fixed
price. At the time of the bankruptcy, TCE lacked the financial resources to properly
hedge its power supply against price fluctuations in the market. ERCOT established the
"Balancing Energy" market as a mechanism to allow REP's to buy and sell small
amounts of electricity for immediate delivery and thereby balance their fluctuating
obligations to supply and purchase power. ERCOT acted as the middleman between
REP's and generation companies for the purpose of providing a marketplace for
additional power to compliment the REP's fixed-price supply.
ERCOT is a quasi-governmental non-profit entity responsible for maintaining the
electric grid and the integrity of the electric power market in the majority of Texas. The
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traditional integrated, regulated utility has not existed in Texas since deregulation in
January of 2002. The ERCOT model has three...