Texas pipeline operators triggered deadly 2021 blackouts while chasing profits, lawsuit alleges
Game recognizes game.
Erik K. Simpson has spent over a quarter-century watching natural gas markets. He traded natural gas on behalf of Enron, the disgraced Houston energy giant that imploded in a fraud scandal. But before Enron’s demise, Simpson watched how the company tried to make billions in the early 2000s by manipulating California’s natural gas and electricity markets.
Enron affiliates and other companies drove up California natural gas prices by withholding supply and ordering fraudulent trades. The scandal imploded Enron, forced California to overhaul its energy market, and led the Federal Energy Regulatory Commission to monitor pipeline operators closely.
FERC required meters at critical nodes on the system and ordered each company to post flow data daily to boost market transparency. But a series of recent lawsuits, including one filed by Simpson, allege pipeline companies are still trying to manipulate natural gas prices during weather emergencies.
Texas has 36,234 miles of intrastate natural gas transmission and storage pipelines, and because they don’t cross state lines, they are exempt from federal regulation. Unlike any other state, Texas allows pipeline companies to own the gas in their pipes, making it easy for the owners to manipulate flows and prices, especially if they know what other pipelines are doing.
The Texas Railroad Commission requires meters on Texas’ internal pipelines but only mandated data aggregated on a monthly basis.
The flows are also important for the Texas power grid since about 40 percent of electricity is generated by burning gas.
PART ONE: Deadly Texas blackouts during 2021 freeze were caused by greed, not the cold, lawsuits allege
Collecting data
Simpson saw an opportunity. He tracked down every meter in Texas, created a proprietary system to monitor the publicly disclosed gas flows and started selling the data through a new company, CirclesX.
On Feb. 4, 2021, meteorologists warned state officials a major winter storm was coming, what became Winter Storm Uri. Simpson saw strange behavior in his pipeline data. It looked familiar, much like what he’d seen when Enron caused the California Energy Crisis.
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After years of collating and confirming the data, CirclesX filed a lawsuit in February against 92 companies and subsidiaries on behalf of all Texans injured by the blackouts. The suit alleges a decades-long pattern of market manipulation that simply spun out of control in February 2021.
The CirclesX lawsuit, and many others, contradict the conventional explanation for the February 2021 blackouts. Texas officials say the storm froze natural gas wells, forcing some power offline. Those blackouts caused more natural gas pipelines to shut down, which forced even more power plants offline.
Simpson’s data, filed in court papers as part of his suit, suggests frozen wells were not the problem. He alleges pipeline companies trying to goose profits by slowing gas flows accidentally triggered the first blackouts. A cascade of blackouts followed.
“Well before the freezing temperatures arrived, Defendants began to decrease production of natural gas to drive up the price in light of the foreseeable surge in demand,” the CirclesX suit alleges. The companies began withholding gas five days before the storm hit and watched prices rise.
WINTER STORM URI: How devastating was 2021's deadly Texas freeze, exactly? Here's what the numbers say
All the defendants insist they operated lawfully and have asked the court to dismiss the suit, according to court documents.
In a 161-page court filing, CirclesX provides data showing dozens of instances where pipeline companies cut off gas flows long before the storm hit.
“On February 8, 2021, Defendants ETC Marketing and ETC Texas Pipeline (subsidiaries of Energy Transfer Partners) reduced natural gas supply at Defendant ETC Marketing’s Hemphill Plant in Hemphill County from 25,000 (million British Thermal Units a day) on February 8 to 0 MMBtu/d on or around February 13, 2021,” the suit alleges. A spokesperson for Energy Transfer Partners said the company does not comment on pending litigation.
BACKGROUND: Which energy source was to blame for the Texas blackouts? Feds say it's not frozen wind turbines
Winter Storm Uri
Gov. Greg Abbott issued an emergency declaration on Feb. 12, 2021, three days before the storm. The Texas Railroad Commission ordered companies to prioritize power plants and residential services. Yet the data in the lawsuit suggest pipeline companies kept reducing flows.
When temperatures dropped on Feb. 15, pipeline companies declared emergencies to suspend their fixed-price contracts. That allowed them to sell the gas to the highest bidder. Prices in Texas skyrocketed.
During the storm, natural gas that generally cost less than $4 for a million British Thermal Units ranged between $200 and $1,200. Meanwhile, at the federally regulated Henry Hub in Sabine, La., prices remained between $5 to $12.
PROFIT IN TRAGEDY: Winners, losers emerge from Texas' historic winter storm
Texas pipeline companies have a history of trying to manipulate markets. Companies have paid fines or damages at least six times over the past decade. The CirclesX suit also shows how other pipeline operators in the same areas during Winter Storm Uri kept the gas flowing and did not break their contracts because they were not trying to rig the system.
Natural gas companies made more than $11 billion in windfall profits from the extreme natural gas prices, prompting widespread outrage. CirclesX was not alone in alleging market manipulation. In part three of my series, I’ll look at the profits and the other cases, including a case where pipeline companies sued one another.