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Natural Gas Firms, Backed by Wall Street, Made Money During the Texas Freeze

image credit: Credit: Wall Street Journal

I have already written about the many companies, energy producers and generators, who made money during Texas’s power freeze in February. Today, the Wall Street Journal reports the case of two natural gas generators – Temple Generation I and TexGen - who made profits in excess of $200 million during the event.

For both companies, the flow of cash is a reversal of fortunes from five years ago, when they filed for bankruptcy. Back then, Temple Generation I, which is owned by Panda Power, sued ERCOT for changing its forecasting methodology to move its market supply from undersupply to oversupply.

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The company was formed to take advantage of the expected shortfall in generation capacity due to retirement of coal plants. But it had not reckoned with the proliferation of government-subsidized renewable energy sources, notably wind power, overrunning the Texas grid.

TexGen has a similar story and was created in 2018 after a chapter 11 restructuring of Exelon’s power subsidiary in Texas. Interestingly, the company bought back its hedging contracts, that promise payments for a locked-in price, before the storm struck so that it could sell more power at market rates during the power freeze.

The Journal mentions several other Wall Street firms that bought into generation capacity profited from the power freeze. Among them are some already well-known names - JP Morgan’s asset management group, Fortress Investment Group, and Guggenheim Partners. (JP Morgan also owns El Paso’s electric utility through a fund).

At least one of them may be a player in the state’s retail market as well. Avenue Capital Group invested in Dynegy, an electric company that operated several power stations in Texas, back in 2017. It was acquired by Vistra, a major retail player in the state. While Vistra has estimated $1 billion in losses due to the freeze, analysts say the setback could be temporary. Along with NRG Energy, the company is expected to corner the market for retail electricity in Texas in the future.

Even as these firms mint money, a crosshatch of lawsuits involving power producers, generators, and utilities is piling up in Texas courts. During hearings about the freeze, Carrie Bivens, ERCOT’s independent market monitor, estimated that the February freeze added $16 billion in costs to ERCOT markets. Who will pay?

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