The blackouts that hit Texas in February left more than 100 people dead and caused billions of dollars in debt for those who found themselves on the wrong side of the state’s famously laissez-faire energy market. For others, it created huge earnings the full scope of which are now coming into focus.
Until recently, companies that made a lot of money during the freeze have tried to keep a low profile about it. But quarterly financial reports have come due making that information harder to conceal.
The big winners: companies that sold natural gas.
During the blackouts both electricity and gas were in short supply, and both could be sold at a premium. The price for wholesale electricity in Texas is capped by state regulators. There is no such market control for gas, which increasedhundreds of times its normal value.
That price hike let companies likeBP, Kinder Morgan and Energy Transfer make billions. Big banks that had invested in electricity and gas contracts before the freeze, like Goldman Sachs and Bank of America, also cashed in.
The size of the profits has led some to question whether price gouging took place.
“If a gas station raises prices from $2 to $5/gal during a hurricane they go to jail for price gouging,”UT Professor Michael Webber posted on Twitter after the blackout. “If a natgas provider raises prices from $2 to $200/MMBTU during a cold snap even though their costs didn't materially change, that seems just fine with Texas authorities.”
One group that has not been “fine” with it are power companies that had to pay those high prices for gas.
Those deals have triggered lawsuits. In one high-profile example, San Antonio’s municipally owned electric utility, CPS Energy, is involved in litigation with multiple suppliers. Those include BP, Enterprise Products, Chevron and Energy Transfer, a company that reportedly made$2.4 billion from the storm.
The Texas attorney general is also investigating the possibility of market manipulation on the part of electricity and natural gas suppliers.
But, as the lawsuits and investigations continue, state legislators are creating laws to ensure that the companies that profited in the freeze get paid.
The tactic they seem to have settled on is known as “securitization.” This is a way of quickly paying off gas suppliers, but it locks utility ratepayers into slowly paying off that debt over decades — with interest.
Proponents of the plan say it's a way of handling the enormous financial fallout from the blackouts, something many utilities and their ratepayers could not afford to pay all at once.
But people who work in the field of utility securitization say such deals must be crafted carefully, so you’re paying money you actually owe. Once you’re locked into the debt, you’re locked in.
“Before you add up the total that’s going to be paid back [through securitization], there’s got to be a really strong look at how much of that is legit,” says Ronald Lehr, a former chair of the Colorado Public Utility Commission who now consults on securitization.
“Was anybody in that market manipulating it? Were people particularly withholding [gas] supplies to drive up prices?” Lehr says. “There ought to be a really hard look at how much really needs to be paid back.”
Got a tip? Email Mose Buchele at mbuchele@kut.org. Follow him on Twitter @mosebuchele.
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