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Central Texas experienced historic winter weather the week of Feb. 14, with a stretch of days below freezing. Sleet followed snow followed freezing rain, leading to a breakdown of the electric grid and widespread power outages. Water reservoirs were depleted and frozen pipes burst, leaving some without service for days.

How Market Manipulation Might Have Worsened The Texas Blackout

The Austin Energy Decker Creek Power Station natural gas plant.
Gabriel C. Pérez
The Austin Energy Decker Creek Power Station natural gas plant in far East Austin on June 25.

The Federal Energy Regulatory Commission is expected this week to release some details of its months-long inquiry into Texas' deadly February blackout. One of the things investigators are reviewing is how market manipulation in the state’s energy sector may have worsened the crisis.

But what exactly are investigators looking for? And what constitutes illegal activity when it comes to the sale of electricity and natural gas in Texas?

How To Game The System

In Texas, the price of energy is based on supply and demand. Whether you’re talking about megawatts of electricity or cubic feet of natural gas, that means energy usually becomes more expensive when there's less of it available.

Ed Hirs, an energy economist at the University of Houston, said that presents obvious opportunities for gaming the system. Higher prices mean energy sellers can make more money selling less energy.

“When producers and generators can combine and withhold power from the market, they can drive the price up,” hetold KUT last spring. “They can do it either willfully, or they can do it with willful blindness” by allowing their supply chain to break down.

In the Texas electricity market, withholding supply to drive prices up is against the rules. But that doesn’t mean it doesn’t happen.

“This is behavior that's taught in MBA programs. We teach the electricity game at school,” Hirs said.

Experts say the rules are different when it comes to natural gas sales in Texas, where withholding supply may not even be a crime (more on that later).

What Do These Investigations Look Like?

When it comes to uncovering market manipulation, Beth Garza says it’s all about looking for patterns.

Garza was the independent market monitor for the Electric Reliability Council of Texas from 2014 to 2019. In that role she was kind of like the auditor for the Texas grid.

She said when power plant shutdowns drove electricity prices up, she would start her investigation by asking some specific questions.

“Is there one power plant owner that seems to be withholding, or having lots of power plant outages at the same time? If I'm a big owner, did I profit? That might raise concerns,” she said.

If the behavior of power generators suggest intentional withholding of power, Garza said, investigators start asking for more information.

She said she might ask power plant operators questions like: What did you know? And when did you know it?

“For example, what did you know on Friday when you declared this [power plant] outage? What were your expectations?” she said.

Those questions could be posed in informal conversations with power plant operators or through formal requests for information or documents.

Under Texas market rules, companies are required to respond.

If ERCOT's independent market monitor finds sufficient reason to think power generators intentionally withheld electricity to profit themselves, those findings are brought to the State’s Public Utility Commission. And if the commission agrees with the findings, it typically reaches a settlement with that company that allows it to pay a fine without admitting wrongdoing.

During her tenure, Garza said her investigations would lead to a handful of such settlements being resolved each year, but she worries that the Public Utility Commission has become more lax on enforcement in recent years.

Different Rules For Natural Gas

While Garza spent her career investigating electric power companies, many of the accusations of market manipulation in February's blackout have been aimed at natural gas suppliers.

The people making those accusations say the pattern of withholding was clear: before the storm hit, natural gas supply dropped and demand rose, leading to higher prices.

“We started seeing a doubling and tripling of the prices as we were getting to the end of the week just before the storm,” Paula Gold Williams, the head of San Antonio’s electric utility CPS Energy, told KUT.

At the height of the blackout, she said, natural gas was sometimes priced 15,000% higher than it was before the storm.

Williams and other power plant operators are now involved in lawsuits, hoping to determine whether natural gas companies intentionally withheld their energy supply to make more money.

The companies say they did nothing wrong. Many gas suppliers have blamed cold weather and power outages for some of the gas supply interruptions, and said individual utilities, like CPS, should have locked in contracts for lower-priced natural gas before prices rose.

But even if natural gas suppliers did withhold supply, it's not clear whether that would be illegal in Texas, Beth Garza said.

The natural gas market "doesn't have any specific rules limiting people in their market activities,” she said. “If your market doesn't have any rules against withholding, people will withhold because it's profitable.”

Many natural gas companies made millions during the blackout.

Even if withholding natural gas weren't illegal, experts say that doing so would have made February's blackout more severe. That’s because the scarcity of natural gas during the crisis meant power plants were unable to get the gas they needed to put energy on the grid.

“Gas was such an important part of the failure and [gas suppliers] made such a profit,” sayid Michael Webber, professor of energy resources at the University of Texas at Austin. “A lot of us might look at and say that doesn't feel right, that the people who underperformed get rewarded.”

What Comes Next?

The Federal Energy Regulatory Commission will provide some information on its investigation into the blackout at an open meeting Thursday, though the full investigation will not be released until later this year.

Even when that happens, it’s unclear what details FERC will provide when it comes to what it uncovered about possible manipulation of the state's electricity and gas markets.

“If the Office of Enforcement finds any potential wrongdoing that can be addressed under FERC’s statutory authority, it will pursue those matters as non-public investigations,” the commission said in a press release last winter.

Much like investigations brought to the Public Utility Commission of Texas, such investigations are normally settled through the payment of fines, without companies legally admitting any wrongdoing.

The results of other investigations into market manipulation during the blackout, including one announced by the State Attorney General’s office and another from ERCOT's current independent market monitor, have yet to be made public. Garza said such inquiries can "take a year or longer to be resolved."

Mose Buchele focuses on energy and environmental reporting at KUT. Got a tip? Email him at Follow him on Twitter @mosebuchele.
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