Lawsuits allege price hikes and market manipulation by gas companies during Texas freeze

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Paula Gold-Williams, president and CEO of CPS Energy, said the days leading up to the winter storm in February were nerve-racking.

As we entered the week before, we started to see that it was going to cover the entire state, which is extremely unusual for Texas, she recalls.

The demand for electricity and heating would be enormous. To prepare, Gold-Williams said, the city of San Antonio utility needed to make sure it had enough electricity on contract and enough natural gas to supply its customers and power its own power plants.

But then something else started to happen. As demand increased and supply tightened, natural gas prices began to rise, Gold-Williams said.

We started to see prices doubling and tripling as we got to the end of the week just before the storm, she said.

As the state was hit by the freeze and the worst blackout in its history, electricity prices hit market capitalization. And some natural gas prices were 15,000% higher than before the storm, Gold-Williams said.

In many cases, utilities had no choice but to buy.

It would be like going to fill up with gasoline during the storm. … and instead of paying fifty dollars to fill your tank, the registry says: give me $ 6,000 to $ 7,000, Gold-Williams said.

But while it’s illegal to raise the price of gasoline during a disaster in Texas, it’s not clear what happened to natural gas prices the same.

In Texas’ deregulated energy market, high prices during times of scarcity are not only expected, they are often seen as a sign the market is working.

But CPS Energy says it was different that the utility called it a price hike.

CPS is one of many public and private utility companies suing natural gas suppliers and the Electric Reliability Council of Texas, the state’s grid operator, over price increases. The state and the Federal Energy Regulatory Commission are also investigating what happened.

These investigations will look for signs that gas suppliers have withdrawn their product from the market to inflate the price of gas during the crisis.

This is behavior that is taught in MBA programs, said Ed Hirs, an energy economist at the University of Houston, who has long warned against such behavior in Texas. You want to push the market into a position where it’s a short tightening, where the sellers actually have market power.

Hirs said this can be done by withholding the product itself in this case gas or electricity or by manipulating the contracts for these products in the financial markets.

When [gas] producers, when producers can combine and hold electricity from the market, they can drive up prices, he said.

This is what the private electricity company Vistra seems to be alleging in the context of a dispute against Koch, one of its gas suppliers. Vistra accuses Koch of cutting off the supply of natural gas, according to its quarterly report.

The gas companies sued and ERCOT deny any wrongdoing.

Energy Transfer Partners is one of the companies in dispute with CPS Energy. It is estimated that the company made around $ 2.4 billion selling gas at high prices during the storm.

In a statement in response to the lawsuit, Energy Transfer Partners claims that CPS bought gas at higher prices during the blackout because it had not properly prepared for the storm.

The gas we sold to CPS was at fully negotiated and transparent prices. They didn’t have to buy gas from us, the statement says in part.

Proving any price increase could be tricky.

Energy analysts say a number of states have clearer laws and more control over what constitutes higher prices for natural gas. But the Texas gas market is largely a private market between buyers and sellers.

Beth Garza is a former independent market monitor for the state power grid who has spent years investigating the fraud.

She said the Texas natural gas industry doesn’t have the rules against market manipulation that the electricity industry, for example, has.

If your market doesn’t have rules against withholding, people will hold back because it’s profitable, Garza said.

Gold-Williams said it was all the more reason to sue.

This is why we are leading a fight that has never been seen in Texas before because the market has not worked, she said.

Gold-Williams hopes the lawsuits will lead the courts to establish a definition of what constitutes a rise in natural gas prices.

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