SANTO ANTÓNIO – CPS Energy has filed 18 lawsuits against entities it claims to have contributed to the huge natural gas accounts it accumulated during the February winter storm. However, energy experts and employees at some of the companies targeted by the lawsuits say the dealership’s poor risk management is to blame.
At issue are hundreds of millions of dollars of natural gas purchased by CPS in mid-February on the spot market, after the price per unit skyrocketed.
The CPS claims in lawsuits that natural gas suppliers have charged too much and even defrauded the price. But defendants and outside experts say the CPS should have been better prepared and bought natural gas before prices soared to avoid the financial catastrophe that has occurred.
CPS Energy President and CEO Paula Gold-Williams said last month the bills accumulated from the purchase of fuel to continue heating homes and running their factories during the storm amounted to about $ 840 million. Gold-Williams, during a press conference on March 12 announcing a lawsuit against the state network operator, Electric Reliability Council of Texas (ERCOT), said the figure had been reduced to less than $ 700 million after the dealership was able to remove the natural gas contracts that were purchased but never delivered.
Records obtained by Defenders show that CPS has received deliveries of natural gas that have increased in quantity since February 11 – days before the storm hit, but days after some experts have already started to predict that the explosion could impact the concessionaires’ infrastructure.
By that time, the price of natural gas in the spot market had almost doubled, according to the U.S. Energy Information Administration.
In a February 10 press release, on the same day that CPS received only 180,000 MMBtu (natural gas units in millions of British thermal units) of purchased natural gas, concessionaire officials admitted that the influx of arctic air mass could affect your equipment, as well as the ERCOT grade.
On that critical day of preparation for the storm, records show that the amount of natural gas delivered to CPS actually decreased from the previous day, when the concessionaire received 190,000 units of purchased natural gas.
Days later, the cold air not only impacted the concessionaire’s infrastructure, but pushed the use of natural gas by CPS customers and their plants to record levels.
A CPS spokesman said last month that the use of natural gas exceeded 600,000 MMBtu per day for eight consecutive days, breaking the usage record for six of those eight days.
When the price of natural gas in the spot market peaked on February 17, CPS Energy received well over 400,000 units of fuel, some through contracts in which the concessionaire paid more than 192 times what it paid for the same commodity a few days earlier, the records show.
CPS officials declined to make Gold-Williams or Kevin Pollo, interim vice president of power supply and market operations, available for interviews for this story.
Last week’s employees with the dealership agreed to do two other members of his senior leadership team available for a virtual interview: Director of Energy Sustainability and Business Development Frank Almaraz and Director of Customer Engagement Rudy Garza.
Authorities canceled the scheduled interview a day later, citing “issues of active complex litigation”.
During a meeting of the CPS board last month, Gold-Williams said the concessionaire currently has about five billion cubic feet (Bcf) of natural gas storage, but is now considering expanding storage capacity to 12 Bcf.
Gold-Williams said during the March 29 virtual meeting that 12 Bcf would create a 10-day natural gas storage capacity for CPS, but that the company would also need to increase its capacity to extract large quantities of natural gas at once .
CPS officials have so far failed to tell Defenders how many natural gas units were stored before the winter explosion or could be used to help meet huge demand.
CPS officials also did not respond to Defensores’ questions, requesting an analysis of the amount of natural gas purchased in the days before the storm and during the period it was used by its plants and by its customers.
An energy executive, who only agreed to speak to Defenders on condition of anonymity, since his company is associated with CPS, said the utility also failed to effectively protect its long-term projections in a way that would have allowed it to do so. best energy preparations days before the storm.
“Hedging costs money. It’s safe. These companies failed to carry out what would be considered appropriate risk management, ”said Ed Hirs, a fellow at the University of Houston Energy, during an March 9 interview with Defenders.
“They should be rolling the hedge every year. It is not necessary that they actually have the natural gas delivery contract, but they do have the future compensation contract, ”said Hirs.
A futures contract allows the buyer of a commodity such as natural gas to block a predetermined price, while receiving delivery and paying for it at a future date.
The clearing of a futures contract is the process of canceling the trade before receiving the goods, causing loss or profit on the trade, depending on the price when the trade was initiated and then cleared.
Hirs said that energy companies can use other financial instruments, such as call options to reduce their exposure to the rising costs of natural gas, “so that they receive a reward in the financial market for the expenses they have to make in the spot market”.
“Absolutely. They were taken by surprise. I’m sure they didn’t expect the market to be like that, but it was. Were there protections that could have mitigated this exposure? Probably yes,” said Hirs, when asked specifically about CPS exposure to high natural gas prices.
Arash Asrari, assistant professor of engineering at Southern Illinois University Carbondale, said that the state’s over-reliance on natural gas contributed to the nightmare financial landscape for companies forced to buy it on the spot market when the price peaked.
“Backup energy is expensive, especially when you depend on natural gas,” said Asrari.
Last month, CPS Energy sued ERCOT for what it described as massive surcharges for energy purchased during the February storm.
The process is now one of almost 20 moved by the concessionaire in Bexar County in an attempt to drastically reduce what it owes for purchases of natural gas.
In a lawsuit filed on March 19 against the Houston Pipe Line Company and Oasis Pipeline, two of CPS’s natural gas suppliers, lawyers representing the concessionaire accused the companies of price fraud.
The signed contracts for the delivery of natural gas attached to the process show that CPS was paying companies up to $ 500 per unit of natural gas during the storm. That figure represents a huge increase over the $ 2.60 unit price that CPS was paying suppliers a few days before the storm hit.
“For contextual purposes, charging $ 500 / MMBtu for natural gas – which is an increase of more than 15,000% over pre-event prices – is the equivalent of charging $ 7,000 for a tank of gas that would normally cost less than $ 50 to fill, ”says the process. States.
CPS lawyers, while recognizing that their analysis of gas prices is ongoing, claim that any amount charged above $ 38.83 per unit is illegal.
On February 23, just days after the storm ended, CPS claims to have received a letter from the Houston Pipe Line Company and Oasis’s parent company, Energy Transfer, showing that it owed them more than $ 317 million. CPS lawyers called the letter a “bad faith attempt” to speed up the collection of “illegal price amounts”.
The lawsuit says that about 83 percent of the Houston Pipe Line Company and Oasis’ charges for natural gas are illegal.
The companies, in response to the lawsuit filed last week, say that CPS is trying to divert attention from its poor risk management and failure to prepare for the high demand for natural gas during the severe storm.
“CPS bought this gas with its eyes wide open, aware of the situation and prices in the gas markets. He confirmed in writing the price and volume of each deal for the defendants, combining the defendants’ own confirmations. Now that the bills are due and the CPS, as it seems to have intended from the beginning, wants to let others down and take away the political and regulatory consequences from itself, ”wrote the energy company lawyers in the counterclaim.
“CPS has evidently not implemented any or very few plans to deal with the impending severe winter and the resulting impact on commodity prices. Instead, CPS accepted the risk of volatile market prices. CPS chose to buy natural gas at fluctuating daily prices, which may fluctuate up or down based on prices set by willing buyers and sellers – a risky choice that left CPS exposed to the competitive gas market and the price increases caused For winter storms, ”affirms the counterclaim, claiming that CPS ignored opportunities to buy gas at lower prices.
The Houston Pipe Line Company and Oasis lawsuit also mentions Austin Energy, a utility company serving the city of Austin, which actually reported a huge profit after selling excess energy during the storm.
Austin Energy officials after the winter blast subsided have estimated net revenue from the storm of $ 54 million.
A spokeswoman for the dealership said last week via email that net revenue continues to look positive, but may fluctuate more or less depending on legislative actions and the market.
Austin Energy serves more than 500,000 customers, about a quarter of the number of customers that CPS serves.
Gold-Williams, during the March 12 press event, said the size of the two dealerships played a big role in the huge financial discrepancy between the two dealerships after they emerged from the storm.
“Our community consumes a lot more in terms of fuel commodity as well as energy,” said Gold-Williams.
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