Texans no doubt remember the 2021 winter blackouts that killed hundreds across the state. Unusually cold weather was blamed, but some are now saying there may have been a manmade factor: market manipulation.
A three-year-long legal battle in a lawsuit making such an allegation had its first court date last week.
The lawsuit, backed by data gathered by Houston-based pipeline analytics company CirclesX, alleges that Texas gas extraction companies, pipeline companies, and banks siphoned natural gas out of the state, knowing that the upcoming winter would increase demand – allowing them to hike up prices.
Companies like CenterPoint Energy, BP, Energy Transfer Partners and Morgan Stanley are listed as defendants in the case.
Saul Elbein, an energy and politics reporter for The Hill, joined Texas Standard to discuss the potential reach, challenges, and consequences of this suit. Listen to the interview above or read the transcript below.
This transcript has been edited lightly for clarity:
Texas Standard: This case is being led by CirclesX, a Houston-based pipeline analytics company. What can you tell us about them?
Saul Elbein: So CirclesX is really interesting. Their founder is a former Enron alum. So many people in the Houston energy industry are.
And he was a young man on the natural gas trading desk, which was an industry that Enron more or less created. He was on the East Coast desk while Enron’s West Coast traders were causing all kinds of chaos in California, where they had essentially grabbed controlling shares in the main electric lines that connected the state to generation outside. And they used that to more or less hike up prices as much as they wanted and cause rolling blackouts. That’s more or less what he says happened here.
Now, what CirclesX does is they separate publicly available pipeline shipment data, which you or I would look at, and we would just see like a scoop of numbers. What they are able to do, though, by having literally walked or driven thousands of miles of pipelines across Texas and the country, is they’re able to correlate that with actual movements and what they saw.
Winter Storm Uri was an extreme example of what they say has been happening several times per year, basically since that gas network was built and became more or less controlled by just a very few actors who had monopoly control over a lot of the shipments.
What they found was, just before the storm, the gas pipeline companies started moving gas out of the tightly federally regulated interstate pipeline network. That is what connects Texas to the rest of the country and into the far less regulated intrastate pipeline network. And allegedly, what they were able to do was restrict supplies inside of Texas and starve gas power plants of power.
And then as they started to go down, as the grid was under threat and the Public Utilities Commission allowed both electricity and gas prices to rise freely hundreds of times, then suddenly they released that gas and made a whole lot of money.
When people are thinking back to 2021 and the reporting that’s happened since then, the narrative has been that Texas wasn’t prepared for this storm and it was the extreme cold weather and the failure to winterize that led to the failures. Are you saying that that’s not happening, or is that what the plaintiffs are saying didn’t happen?
Now, I want to be really careful here. What the plaintiffs are saying is that the “failure to winterize” narrative was essentially a smokescreen – as in the 2008 market manipulation, Hurricane Ike was a smokescreen. It was a cover that allowed a whole lot of manipulation to happen under the guise of the larger chaos that was going on.
That being said, after I put the story out, I got a text from an environmental activist who was a longtime member of the oil and gas industry, but now spends a lot of time running around West Texas tracking the methane plumes and volatile organic plumes that are pouring out of wellheads, pipelines, pumping stations, valves…
And what she said was, “look, I have no trouble believing that these people manipulated the market. But also I can see how generally subpar their infrastructure is, and also, I can see just how much damage was caused by the freeze.” And her big takeaway was the oil and gas industry is simply not prepared and their equipment is not ready to cope with the consequences of the disaster that they’ve helped to create.
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I guess at the risk of getting too complicated, to be a plaintiff, do you have to have direct harm? It seems like CirclesX is kind of an observer here with data and information that is key to this case, but are they going to have to prove they were harmed by this raising of the rates?
That’s a great question. And one of their real struggles here has been looking for individual Texans who were harmed.
I think they have a bunch of people as a class who are suing. Lots of people had to pay a lot of money, and the salve that was supposed to stop people from having to pay exorbitant prices was, if you’ll remember, in 2021, the Legislature passed a bill that basically said “in exchange for these huge bills that you have now, we’re going to give you a payment plan. We’re going to lock them in, but you’ll have decades to pay them.”
CirclesX is arguing that’s a harm to millions of Texans, and those people have joined the case. But also, what they’re trying to do is get major gas and power plant utilities on board. Those were the people who were most directly and immediately harmed.
However, those people are in kind of a bind. They don’t want to come at the king, as it were, unless they’re sure they’re going to kill him. They don’t want to sue the gas pipelines, which are often their only means of getting the only fuel they can run on, unless they know there’s going to be serious reform. And so far in Texas, that’s a tough sell.
And there’s also another legal complication, which is whether there is jurisdiction – whether too much time has passed. Can you give us a little summary of some of those challenges?
I can. Now, it’s a little bit of a fun legal fact that at this stage in the game – where if you’re in the shoes of the pipeline companies and you want to get this thing thrown out with a motion to dismiss – what you have to do is essentially say, “Look, let’s say all of your claims are true in their most extreme form. Let’s say we did do the crime of the century. Let’s say that’s true.” Later, of course, they’ll argue that they didn’t. But let’s say that it’s true: “Here’s why none of us should be here and why we’re all wasting the judge’s time.”
And the argument for what that in 2021, the Legislature said under all of this outcry over the high prices that people are being charged, we are going to create a system at the state government, the Public Utilities Commission, and the Texas Railroad Commission to find out if these fees were fair.
And if they find that the fees are fair, and that is what they found, then we’re done. And if you, after that process, don’t agree with us, you’ve got such and such amount of time to appeal to the district court in Travis County. And you didn’t participate in that process, you didn’t file your appeal, clock thrown out.
Now, we’ll see if the judge accepts that. And if the judge does accept that, we’re done. Maybe there’s another venue they can sue in. If the judge does not accept that, then we proceed on to an argument on the actual merits of the case.
Are there any lessons to be learned, or I guess maybe examples that might provide how this might move forward? Because I understand this isn’t the only market manipulation case involving energy prices that’s been going on in the country lately.
There is a big potentially precedent-setting case around Winter Storm Uri that just closed in Oklahoma, where it turned out that BP had broken their contract with the Arkansas-Oklahoma gas utility. They invoked essentially an act of God and didn’t send on gas that they were contracted to, forcing that utility to buy a whole bunch of gas on the open market.
Maybe that sounds familiar from what we’ve just been talking about. They were required to pay back tens of millions of dollars.
Now, whether that addresses this specific question of how things are resolved in Texas is sort of an open question, but it comes amid a much larger array of speculation and accusations around how the oil and gas industry behaves and how it uses its controlling market share and how it uses its control of information.
There’s also a suit by the city of Baltimore and an investigation by the Department of Justice against Pioneer, which is a big fracking company in West Texas, that’s trying to merge with Exxon. Their CEO allegedly illegally conspired with OPEC in 2020 to keep gas and oil prices high.
Now, that’s all still being fought out. But I think the big dynamic here that is potentially going on is, on the one hand, the West Texas fossil fuel industry is venting a whole lot of methane into the atmosphere. They are literally driving extreme weather. And on the other side, CirclesX is alleging, and a whole lot of investigations and some settlements and findings by the federal government have found, they’re using extreme weather as a cover for market manipulation.
So they are, on the one hand, contributing to a crisis and on the other hand, that crisis is something they can directly benefit from. And also, as you’ll remember from our legislative session in 2021 and 2023, the increased extreme weather is something that is causing the state to want to buy further into gas.
Well, where does this CirclesX case go next? Is there a next court date? When do we expect the next sort of decision in where this goes?
We’re going to get some sort of a ruling from the judge on whether this can proceed in the next few months. I think we might very well see more fighting around this in the Legislature, because while climate is an increasingly mainstream concern, it is still rather polarized.
This sort of thing cuts across all party lines. People of all stripes were very angry after Winter Storm Uri. And I think we’re likely to see another flash of that come 2025.
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