OKLAHOMA CITY — A wholesaler that supplied millions of dollars of high-priced natural gas to Oklahoma utilities during a bitter mid-February 2021 winter storm has been sued by the State of Kansas, alleging fraud and market manipulation.
In Oklahoma, Attorney General Gentner Drummond announced recently that he may take legal action against various unidentified entities he believes are responsible for market manipulation and “other potentially unlawful conduct” arising from Winter Storm Uri.
Drummond said a review he ordered found that many companies used the aberrant February 2021 storm to “rake in billions of dollars in ill-gotten gains.” Several companies “reaped billions of dollars at the expense of businesses and individuals who were suffering from the crippling effects of the storm,” he said.
One of Drummond’s peers, Kansas Attorney General Kris Kobach, filed a lawsuit earlier this year against Macquarie Energy LLC, claiming its actions during the winter storm two and a half years ago violated the Commodities Exchange Act. Kobach alleges Macquarie bought gas at artificially inflated prices to increase its profits.
“On the basis of currently available and partial data … Macquarie’s misconduct was responsible for illegitimately causing more than $50 million of Kansans’ Excess Costs” in Winter Storm Uri, Kobach claims. As the case progresses, investigation “is expected to reveal the aggregate harm to Kansas residents to be far larger.”
Macquarie was one of the largest suppliers of natural gas to Oklahoma utilities during Winter Storm Uri. During the first quarter of 2021, Macquarie was the second-largest gas marketer in North America, “delivering 11.2 billion cubic feet of natural gas each day,” Kobach wrote.
The company sold more than $153.7 million in fuel in February 2021 to Oklahoma Gas & Electric, Public Service Co. of Oklahoma, CenterPoint Energy, and Oklahoma Natural Gas, documents filed with the Oklahoma Corporation Commission showed. All four utilities increased costs to consumers because of the winter storm fees.
Kobach alleges that Macquarie manipulated “a key natural-gas benchmark price for Kansas and its residents: the Southern Star Gas daily price.”
Macquarie is one of the largest natural-gas marketers in North America, “particularly in the Mid-Continent region that includes Kansas” and neighboring states such as Oklahoma, “and within that region the Southern Star location, which comprises numerous gas delivery points on the Southern Star Gas Central Pipeline” that is centered in Kansas.
That interstate natural-gas pipeline extends into Oklahoma and Missouri, Colorado, Texas, Wyoming and Nebraska. The Southern Star Central has approximately 6,000 miles of “main line” pipe.
Macquarie is a middleman to natural-gas companies. It sells “very large volumes of natural gas – in both absolute and relative terms – to local distribution companies (state gas utilities and similar regional or municipal entities), electric power generators, large commercial and/or industrial entities, and other market participants, including other natural-gas marketing companies,” Kobach writes in his lawsuit petition.
During Feb. 13-16, 2021, price peak, benchmark Mid-Content natural-gas prices, which at the beginning of that month were approximately $2.50 per million British thermal units (MMBtu), soared to approximately $200 to $300 per MMBtu, Kobach related.
The relentless subzero weather during Feb. 14-17, 2021, is thought to be the most extreme cold in this area since February 1899,” Kobach wrote in his court petition. Consequently, Kansas residents “will be paying increased utility bills for years to cover energy companies’ costs” during that four-day period.
Utilities serving Okla. paid exorbitant prices for gas in 2021 storm
CenterPoint Energy, which subsequently sold its assets in Oklahoma and Arkansas to Summit Utilities, claimed it incurred a $79 million gas bill for the two-week period of Feb. 7-21, 2021. “That was more than three times the company’s cost of gas in all of 2020,” the Corporation Commission was told by Brett Jerasa, assistant treasurer of CenterPoint Energy Services Corp.
The Oklahoma Corporation Commission authorized CenterPoint/Summit to recover $87,678,270 in extreme purchase costs and extraordinary costs, plus financing costs. Those expenses will be amortized over a 15-year period; a typical customer will pay $4.36 per month during that entire time to retire the debt. The natural-gas retail company serves approximately 100,000 residential, commercial, industrial and transportation customers throughout Oklahoma.
PSO has more than 568,000 customers in eastern and southwestern Oklahoma who will be paying off that company’s 2021 winter storm expenses for 20 years. For a typical residential customer who uses 1,100 kilowatt-hours of electricity per month, the average monthly surcharge is $4.72.
The Corporation Commission allowed OG&E, which has 870,000 customers, to recover $739 million in extraordinary expenses from the 2021 winter storm. Its residential customers will be billed an average of $2.12 per month for 28 years to retire that debt.
ONG testified that during Winter Storm Uri it had to use approximately half of all gas it had in storage and was forced to buy natural gas on the spot market at prices that skyrocketed from $2 per unit to almost $1,200. ONG reported it incurred $1.284 billion in fuel costs during the storm; additional expenses boosted the total bill to $1,357,300,000.
ONG has 905,000 residential, commercial and industrial customers. The average residential customer will pay $7.82 per month for 25 years to retire that debt, officials calculated.
Macquarie paid ‘highest price ever’
The Southern Star Gas Daily price was $329.595 per unit on Feb. 13-16, records reflect.
On the morning of Feb. 16, 2021, Macquarie “entered into an economically irrational natural-gas trade in which it purchased natural gas for next-day delivery within Southern Star at the single highest price ever paid for Southern Star natural gas,” Koback writes -- $622.785 per MMBtu. “No one has ever paid more,” he claims. “Indeed, no one has ever paid any fixed price for Southern Star gas even remotely close to the price that Macquarie agreed to pay.”
Macquarie’s behavior on Feb. 16, 2021, was “economically irrational and contrary to its self-interest as a natural gas marketer – unless intended all along to manipulate the February 17, 2021, Southern Star Gas Daily price.
The American Public Gas Association described the natural-gas prices and benchmark prices in multiple Mid-Continent locations – and Southern Star particularly – as “unprecedented and unthinkable.”
Macquarie Energy was incorporated in Delaware, but its principal offices are in Houston, Texas.
Macquarie Energy is a wholly owned subsidiary of Macquarie Bank Limited, which in turn is a wholly owned subsidiary of Macquarie Group Limited (MGL), an Australian multinational investment bank and financial services company that employs more than 16,000 people across 32 markets worldwide.
Although Macquarie was “one small part” of MGL’s Commodities and Global Markets (CGM) division,” Kobach wrote, the amount Macquarie earned from two weeks of U.S. natural-gas trading in mid-February 2021 was as much as CGM in its entirety earned in four years.”
The 49-page Kansas lawsuit was filed in a state court in February, but was removed to Kansas’ federal district court on May 2; the case was still active on July 27. If a trial is held, it will be in Topeka, Kansas. Kobach is seeking an outside law firm to pursue the case, court records indicate.
Macquarie produced approximately 5,000 records during pretrial “discovery,” but many of the documents were “heavily redacted, effectively making them unusable or unresponsive,” Kobach complained to Judge Daniel D. Crabtree.