2 weeks Ago By Mose Buchele, KUT
On Feb. 15, 2021, Erik Simpson woke up in Houston without cellphone service, so he went outside looking for a signal. Lack of a phone service was one of many problems afflicting the city that morning.
The night before, as a historic winter storm moved into Texas, the state's grid operator had cut power to millions in order to stabilize the electric grid. By daybreak, much of Houston was without power. Pipes were freezing.
Simpson said a neighbor's house caught fire. But, as he walked around his block, something else caught his attention. The storm had not knocked down many trees, at least not in his neighborhood.
Why, then, he wondered, was the power out? "If trees are knocking down power lines, that’s just an act of God and, you know, a terrible natural disaster," Simpson said. "But in this situation early on, there was very little of that. It didn’t make sense.
" Without visible evidence showing why the power was out, Simpson said his mind immediately went to his former employer, the energy giant Enron. Simpson worked for the company as a natural gas trader at the time it caused blackouts in California by intentionally withholding gas and electricity to boost its own profits. "I was on the east power desk at the time," he said.
"The guys on the west power desk were basically buying up capacity on all the lines going into California. It would cause prices to spike, and they would make hundreds of millions or billions of dollars." Simpson was not the only one who wondered if something similar was afoot in 2021.
But he was one of the few people with the resources to look into it. He runs the natural gas analytics firm CirclesX. He said within days of the blackout he was using his company's method of tracking flows of natural gas to uncover an Enron-style fraud taking place on the Texas pipeline system.
This is the origin story of one of the most closely watched lawsuits stemming from the 2021 Texas blackout. In the years since his morning walk, Simpson hired a law firm and convinced thousands of Texans to join him in litigation against some of the biggest names in energy and finance. That includes fossil fuel and pipeline companies BP, Energy Transfer, Atmos Energy, CenterPoint Energy, ExxonMobile, Kinder Morgan, Koch Energy Services, and Shell Energy as well as commodity traders Morgan Stanley, Goldman Sachs, Bank of America and many others.
The suit alleges that these companies exacerbated or even sparked the days-long power failure by withholding natural gas to drive up prices. Simpson said his lawsuit also provides evidence that pipeline companies and gas suppliers broke firm contracts with electric utilities only to sell gas for higher prices in the midst of the crisis, further reducing electric reliability. In the energy business it is against contract law for gas suppliers break a contract simply because they want to get a better price for their gas somewhere else.
But Simpson alleges that companies falsely declared force majeure , a legal term meaning that the bad weather prohibited them from delivering gas, in order to get a higher price. Traders sometimes jokingly refer to this practice as price majeure . Simpson has other words for it.
“It’s just real simple: lying, cheating and stealing,” he said. “If you cancel your contract with someone and flip it to someone else, that’s illegal under Texas law.” The companies named in the suit all deny any wrongdoing, but this kind of market manipulation does happen — often during extreme weather events.
In 2005, the pipeline company Energy Transfer was accused of illegally depressing natural gas prices at the Houston Ship Channel during Hurricane Rita. The company denied all wrongdoing, but eventually reached a settlement with federal regulators. In 2008, oil and gas giant BP fell under investigation for gas market manipulation around the time Hurricane Ike hit the Gulf Coast.
The company similarly denied wrongdoing, but eventually came to a settlement just two years ago. During the 2021 winter storm, natural gas and other energy companies made an estimated $11 billion in added profits. The goal of the CirclesX lawsuit is to get those companies to pay back some of that money.
"Energy transfer gets a $2.5 billion windfall. BP gets a $4 billion windfall" in 2021, Simpson said.
Simpson said that money is wrongly being paid by everyday Texans who, since 2021, have paid extra on their utility bills to pay off the debt caused by high energy costs during the storm. The fact that Texans suffered during the blackout and then were made to pay extra after it, became a serious sore spot in the years following the crisis. The CirclesX lawsuit has won praise from the editorial board of the Houston Chronicle and captured the attention of many who suspected what Simpson calls "monkey business" by gas and pipeline companies.
But, like many other lawsuits stemming from the 2021 blackout, the CirclesX case has so far failed to gain traction in the courts. In early November, a Harris County district court judge dismissed the case, citing a lack of jurisdiction. In court, the energy companies argued that, even if they did what CirclesX says they did, the Texas legislature had already deemed those actions legal, by paying the companies the windfall profits they made during the storm through a process called "securitization.
" That securitization legislation was likened to a "payment plan" by its supporters. It compensated the energy companies by taking out a massive loan to pay them off in a lump sum. The loan is now being paid down through monthly charges added to Texans’ utility bills.
CirclesX argued that securitization doesn’t mean ratepayers can’t recoup money already paid to energy companies if fraud is proven. "Our view is that ..
. you have an obligation to then recover the money if you later found out that it was ill gotten gains," Simpson said. But the court agreed with the energy companies.
It found CirclesX had no standing to bring the case. The judge found that the court lacked jurisdiction over "the amount at issue over the securitization of natural gas rates" and the alleged "harm related to loss of natural gas service.” KUT reached out to several of the companies named in the suit for reaction.
CenterPoint Energy replied: "We appreciate the diligence shown by the district court in dismissing all claims against CenterPoint and the other defendants." The energy company also noted that the court agreed with CenterPoint's argument "that the Railroad Commission of Texas had already weighed in on the issues alleged in the claims against the gas utilities." The Railroad Commission of Texas, the state's oil and gas regulator, oversaw the securitization of gas costs in the aftermath of the storm.
CirclesX is now bringing the case to a court of appeals. It is due to submit that appeal by March 28. Simpson said other cases against energy companies and utilities in federal courts in Oklahoma and Texas have survived motions to dismiss.
He said his company is working with the Oklahoma’s attorney general, who filed a third lawsuit last month alleging price gouging by natural gas suppliers during the February 2021 storm. "It’s been a long journey on this thing, but it’s probably a long way to go yet," Simpson said..
