Texas pipeline companies accused of market manipulation during Uri

Deadly blackouts that killed hundreds of people across Texas in 2021 —  which have been widely blamed on failures to properly insulate gas pipelines — may have had a more nefarious cause, a new lawsuit alleges.

Over the past three years, a wave of new data — and lawsuits — have made the case that the outages were, in fact, a result of market manipulation by some of Texas’s biggest fossil fuel companies.

On Monday, Houston-based pipeline analytics company CirclesX and representatives of major energy companies fought the first skirmish in that campaign in a Harris County courthouse.

Those companies, plaintiff’s lawyer Andrew Gould argued on Monday, “diverted natural gas before winter, to create artificial scarcity — thus driving up the price.”

The defendants in the case include nearly three dozen major Texas gas extraction, pipeline companies and banks: Companies like CenterPoint Energy, BP, Energy Transfer Partners and Morgan Stanley.

The Hill has reached out to these companies, but only CenterPoint responded, to say that it does not comment on pending litigation. 

But on Monday, company lawyers argued that even if the claims were true, the Harris County courthouse didn’t have jurisdiction, because the 2021 state legislative session had established a process which, ultimately, ruled that the sky-high profits by the defendants were fair.

The plaintiffs “could have participated in that regulatory process, and could have raised all the complaints that they’re raising now about utilities,” Weston O’Black, an attorney for CenterPoint, said on Monday.

Had they missed that opportunity, O’Black argued, the only other means of challenging those conclusions was to do so in Travis County district court — an opportunity that has now expired.

But CirclesX attorneys charged that the harm to Texans had happened long before that legislative process began. Its suit comes on the heels of courts in Oklahoma and Arkansas finding market manipulation by pipeline companies during Winter Storm Uri — as well as a wave of other suits that allege manipulation in Texas.

It also follows widespread, bigger-picture allegations of market manipulation and racketeering by the oil and gas industry — like the July lawsuit by the city of Baltimore that argued oil and gas driller pioneer had illegally conspired with foreign governments to inflate the price of oil and gas.

The charges aired in court on Monday were a far more limited version of CirclesX’s broader, more explosive claims:For decades, Texas’s major pipeline companies have covertly squeezed gas supplies before cold snaps and hurricanes.

In doing this, the plaintiffs argued, they have driven up the price, and then using the ensuing disaster as a cover to break existing contracts, freeing up their gas supplies to be sold for newly-soaring prices on the spot market.

“Winter Storm Uri followed this playbook,” the suit argues, “and indeed represents the most egregious example of Defendants’ manipulation and their greatest heist yet.”

In this alleged “heist,” the suit contends, the gas companies starved their contracted customers of gas, helping ensure the shortages that led to blackouts, hundreds of deaths and costs of hundreds of billions of dollars.

“Simply stated, the ‘failure to winterize’ narrative is misleading,” the CirclesX lawyers wrote. 

“Unfortunately, Defendants’ false narrative has served, until now, to insulate them from scrutiny and accountability.”

CirclesX was founded by a former Enron gas trader, Erik Simpson, who saw in the aftermath of Uri an echo of what Enron traders did in 2001, when the company’s manipulation of California’s newly-deregulated electricity market drove the state’s grid into rolling blackouts.

Simpson argues that Texas pipeline companies have essentially done the same thing consistently, several times per year, since Enron’s fall — culminating in Winter Storm Uri, and proceeding thereafter.

In 2007, for example, the Federal Energy Regulatory Committee fined Energy Transfer Partners, one of the defendants in Monday’s case, $82 million for market manipulation.

According to FERC, Energy Transfer Partners had used its market power to crash gas prices at the trading hub in the Houston Ship Channel, triggering lucrative bets they had made that guaranteed payouts if prices fell.

And in 2016, FERC fined BP $20 million and required them to pay back $207 million for gaming the gas market after Hurricane Ike.

But the most important recent case resulted in a verdict last September, when an Oklahoma federal court found that during Winter Storm Uri, BP had breached its contract to deliver gas to Arkansas Oklahoma Gas (AOG).

While BP blamed this failure on “force majeure,” or an act of God, the federal judge ordered it to pay back $18 million to AOG — finding that BP hadn’t done enough to guarantee the gas supply for which it had been paid. The court found that BP’s plea of an act of God, in turn, forced AOG to scramble to buy gas on the open market as prices soared during the winter storm — money that the judge ordered BP to reimburse.

Simpson, the head of CirclesX, argued to The Hill that the findings in that case established a pattern. “If BP did it there, they did it everywhere,” he said.

After that suit, Oklahoma Attorney General Gentner Drummond (R) praised AOG for taking BP to court, rather than simply “securitizing” the heightened costs and passing them on its customers.

In Texas, by contrast, securitization was the order of the day. 

In the contentious 2021 legislative session that followed Uri, the state House and Senate codified the billions of dollars in profits that gas companies had made as gas prices surged in the wake of the storm — turning them into “non bypassable” surcharges that would be tacked onto millions of Texas ratepayers’ bills for decades to come.

CirclesX has argued this meant that “in effect, the windfall profits of the Defendants, produced by market manipulation,” as well as all their transaction costs — including payments to banks like Morgan Stanley — “are being paid monthly by millions of Texans for the foreseeable future.”

So CirclesX’s fight now is to get that money returned.

Simpson told The Hill that his experience at Enron, a visionary but fraudulent company, had taught him “what to look for when all this happened 20 years later.”

In his adopted hometown of Houston, power was out for one to two weeks, “depending on the area, and it didn’t make any sense,” he said. He pointed out that unlike in hurricanes like Rita, Ike or Beryl, “no trees had fallen on the power lines,” and argued that the idea of frozen gas pipes didn’t hold water.

A 2-inch feeder pipeline, he argued, might freeze. But a 12-, or 24-, or a 42- inch gaspipe, he argued, “is like the ocean. There’s too much water. The big gas lines do not freeze, and it’s not possible for [underground] storage to freeze. It’s too big.”

CirclesX’s business model, the lawsuit argues, allowed company officials to uncover a “swindle.” The company’s business is built on pulling publicly available but inscrutable online data showing the movements of gas across the nation’s pipeline and turning it into a usable dataset.

Through decades of company employees driving, hiking and backpacking along the nation’s pipelines, they have turned a collection of numerical waypoints and coordinates into a usable map that allows them to track the gas shipments of specific pipelines. This data, CirclesX’s court filing argues, shows that as warnings of the coming storm began in the month before Valentine’s Day 2021, the defendants began moving gas from the interstate pipeline network — which is regulated by FERC, and requires daily reports on gas flows — to the far-less-regulated Texas-only network.

This allowed a kind of Texas two-step, Simpson argued.

As the storm grew, Energy Transfer Partners declared force majeure and broke its contracts with Houston power plants dependent on gas from the Bammel gas field — which is connected to Houston by a pipeline it owns.

“Houston was out for a week and a half, two weeks in some neighborhoods, with the biggest storage field in the state right next to it,” he said. “And the gas was flowing — but not to Houston.”

Instead, Simpson told The Hill, that CirclesX showed that after insisting the gas could not flow, Energy Transfer Partners then sold it at inflated prices to the Brazos Electric Power Cooperative in San Antonio — leaving Brazos with $2.1 billion in costs and driving it into bankruptcy.

These claims were beyond the scope of Monday’s proceedings, in which defendants challenged the plaintiffs standing to bring a suit in Harris County court, and argued that it was outside that court’s authority.

This “plea to the jurisdiction,” a standard step in trials like this, required the defendants to assume that everything the plaintiffs are arguing is true — and to make the case for why, even if so, they should be thrown out.

If the CirclesX suit survives this initial challenge of proving that the Harris County court has jurisdiction, then these claims will be adjudicated in the coming months. 

Simpson told The Hill that he is a devout fan of capitalism, but that the dual regulatory system — lax in-state, strict across state lines — doesn’t work. The current system, he said, is “a recipe for 100-percent smelly fish in the river.”