A batch of lawsuits filed by natural gas distributors against some of their suppliers in the wake of Texas' recent winter storm could test uncharted legal territory, market observers and legal experts said.
City Public Service of San Antonio and Spire Inc. subsidiary Spire Missouri Inc. claim those parties, which include pipelines and marketers, owe them millions of dollars for unreasonable costs incurred as gas prices spiked during a February polar vortex.
The San Antonio-owned utility, also known as CPS Energy, told the Bexar County District Court in March that two Energy Transfer LP and several top-ranked marketers illegally charged "unlawful, excessive, and exorbitant prices," with BP Energy Co., Macquarie Energy LLC and Tenaska Marketing Ventures Inc. invoicing CPS $7.1 million, $1.2 million and $6.6 million, respectively, during a two-week period in February.
James Coleman, an energy law professor at Southern Methodist University, said allegations of price gouging often pertain only to finished consumer goods, and that it could be difficult to apply the law to commodities whose prices naturally fluctuate.
"A lot of times you'll hear people say, 'If prices rise more than 10% between the crisis and before the crisis, that might be a sign that there's price gouging,'" Coleman explained in an interview. "You can't apply that to oil and gas markets because they jump around all the time, but the price gouging law does apply to fuel, so you might wonder: Why not try?"
The Electric Reliability Council Of Texas Inc.'s market structure is also designed to increase prices during shortages, Coleman said, which creates a mismatch with price gouging laws.
Energy giant ConocoPhillips, however, asked the Harris County District Court in Texas to order CPS Energy to pay in full for gas purchases made during the storm because the municipal utility's move to "shortpay" the amount constitutes an anticipatory breach of contract.
"CPS Energy should not be permitted to enter the marketplace, agree to pay the market price, receive the gas that it agreed to purchase, and then later unilaterally and retroactively re-set the price to one of its choosing," ConocoPhillips wrote in the March filing. The company has demanded a trial by jury and is also seeking monetary damages in excess of $1.0 million.
Spire Missouri, meanwhile, filed three lawsuits aiming to recover a total of $135 million from Energy Capital Partners LLC's Symmetry Energy Solutions LLC, Exelon Corp.'s Constellation NewEnergy Gas Division LLC and Clearwater Enterprises LLC.
According to complaints filed in the U.S. District Court for Missouri's Western District in March, those marketers failed to supply enough gas to be delivered to customers during the storm during a seven-day period in February, forcing the gas utility to purchase gas to make up the difference.
When it comes to Spire's allegations that suppliers violated contracts, Regulatory Research Associates energy research director Lillian Federico said there is no real precedent from previous extreme weather incidents, such as the polar vortex events of 2014 and during the 2018-2019 winter seasons.
"You didn't see a lot of [local distribution companies, or] LDCs suing shippers," Federico said. "Those events happened in the Northeast and Canadian border states that are used to that kind of weather, so their facilities are weatherized to withstand it, so even when you have severe weather, you don't see the same kind of disruption that results from equipment malfunction."
Those past price spikes were also more subdued, Federico added. Compared to the 2021 outages, which saw gas prices at hubs in Texas and the Midcontinent soar to triple and even quadruple digits per MMbtu, hubs in the Northeast and Midwest did not see such huge swings.
For Spire's suppliers, whether they must compensate the utility will come down to how well any provisions for unforeseeable circumstances hold up.
"How much is within the realm of what you can possibly be expected to forecast? That will be something that comes into play as the courts look at force majeure clauses in any of these contracts," Federico said.
Spire said in an emailed statement that Symmetry Energy Solutions, Constellation and Clearwater Enterprises are obligated to compensate the utility as they "previously agreed by contract ... in such situations."
Regulatory Research Associates is a group within S&P Global Market Intelligence.