David J. Phillip/AP Photo
Texas’s deregulated energy market shifts risk directly onto consumers, who have little recourse when prices surge.
If you’ve been following the Texas energy crisis, you’ve probably heard about the adorably named Griddy, a web-based power supplier with 29,000 customers that offers an unusual deal: Get your power wholesale on the spot market. When the weather is seasonable, these variable rates can be lower than the retail price. But when energy gets scarce, as it did during snow and ice storms that took large sections of power generation offline, the wholesale price shoots up.
Griddy warned customers to switch suppliers in the midst of the storm, but it took too long to change over to avoid energy bills of $5,000 or more, for five days of service. One customer “lucky” enough to have his lights stay on during the storms got a bill for over $16,000. Others had their bank accounts drained after Griddy reached in to directly draw funds to pay the power bills.
The problem here lies with a deregulated system that allows households to choose to pay variable wholesale energy prices with no cap, much like the adjustable-rate mortgages sold during the housing bubble. This shifts risk directly onto consumers, who have little recourse when the winds (in this case literally) shift against them.
Texas officials are devising ways to bail out these consumers, which is an indirect bailout for companies like Griddy (as long as it dodges a $1 billion class action lawsuit for exorbitant charges). And the overall system has been transferring wealth from consumers to electricity companies for two decades. Customers buying their electricity from a menu of companies rather than local utilities paid $28 billion more over the past 20 years.
That’s good news for Griddy, and it’s really good news for a powerful yet obscure Australian investment bank that staked Griddy with an undisclosed amount of capital late last year. It’s called Macquarie Group, and perhaps no other business expects such rewards from the Texas energy mess.
Macquarie, which trades in commodities like electricity and natural gas, has already announced that it would get up to a $215 million boost from the run-up in spot prices. That was enough to increase full-year profit expectations for the bank by 5 to 10 percent, just from this one action.
Other energy traders enjoyed similar windfalls to Macquarie, literally gloating about their “jackpot” at the expense of Texas consumers. But few companies are as well positioned to profit from two interconnected challenges America will soon embark on: modernizing the energy mix and rebuilding crumbling infrastructure. In addition to energy trading, Macquarie owns controlling stakes in utilities and pipelines. Plus, it’s a major player in infrastructure privatization projects like highways, and could stand to benefit from a large-scale infrastructure bill being discussed in Congress. Macquarie is the next corporate giant we have to all learn about, and its recent history should not inspire confidence.
Most banks have some restrictions on trading and ownership of physical commodities, going back to the Bank Holding Company Act of 1956. But Macquarie never structured itself as a commercial bank in the U.S., freeing it from most bank regulatory constraints. Macquarie is the second-largest wholesale gas marketer in the U.S., behind only BP. The growth has come through acquisition, including the purchase of Cargill’s energy division in 2017. It claims to have access to 80 percent of all U.S. gas pipelines, and can move resources around to capitalize where energy is scarce, like in Texas earlier this month.
Macquarie also earned massive profits during the California blackouts in August 2020, despite federal regulation of the California grid (unlike Texas). The Federal Energy Regulatory Commission (FERC) imposed a “soft cap” for power sales on the spot market. In 2020, any sale above $1,000/MWh needed to file a report justifying the charge. Macquarie acknowledged executing 19 “market-based” trades during the week of August 16 above that soft cap, citing heavy demand for power during a heat wave.
There’s a non-public version where Macquarie further detailed those trades. Tyson Slocum, director of Public Citizen’s Energy Program, has seen those justifications due to his status on government advisory boards. “I can tell you that none of the 19 trades were at all justified,” Slocum told me. “All 19 are clear evidence of what I call climate change price-gouging.”
Traders of power have access to pipelines and can route power where it’s needed. But Macquarie also owns controlling interests in power plants. So it’s on both sides of the bargain. According to a document filed this month with FERC, 38 power-generating entities are under Macquarie’s control, including the assets of Cleco and Sterlington Power, utilities in Louisiana, and Wheelabrator, which has several power stations in the Northeast. Macquarie also previously owned Puget Energy and Duquesne Light, but sold them in recent years.
Macquarie never structured itself as a commercial bank in the U.S., freeing it from most bank regulatory constraints.
The bank also has investments in a Texas-based natural gas pipeline network called Multifuels Midstream Group, which is not subject to FERC jurisdiction. “This pretty new acquisition appears to be Macquarie’s launch pad for its trading operations that just made the bank $215 million,” Slocum said. Because Multifuels Midstream sits outside of FERC regulation, it’s not bound by federal restrictions on communications between natural gas pipelines and energy trading affiliates. This means that it would not violate federal law for Multifuels Midstream and Macquarie to have communicated during the Texas crisis to maximize trading revenue.
But there’s more to Macquarie’s profit-maximizing schemes than just energy. Another division of the bank, Macquarie Infrastructure Corporation, is one of the world’s leading private infrastructure companies. It provides operation services for dozens of regional and international airports in the U.S. (it recently tried to privatize the St. Louis airport), manages the nation’s largest bulk storage business, and is extremely active in highway privatization.
Macquarie has operated numerous toll roads over its life span, from the Chicago Skyway to the South Bay Expressway in San Diego to the Indiana Toll Road. Those last two ended in bankruptcy, which Macquarie blamed on the Great Recession. The company still managed to profit off running those projects into the ground, despite bad traffic projections and mismanagement. It employs a byzantine ownership structure that allows it to sever bad investments easily and move on. And it continues to win more bids, like a partnership with Australia-based Transurban to build toll lanes for the Washington Beltway. Macquarie also won a recent contract to install broadband throughout Kentucky, which came in $93 million over budget.
These projects are often flawed by their very design. Because the private company needs to earn a profit in ways a public provider doesn’t, it can only succeed by gouging customers, cutting labor or safety costs, or both. Cities and states jump at the lure of an up-front payout, but then lose democratic control over a public asset like a road.
This has all been known for many years; Bethany McLean did an expansive profile of Macquarie in 2007. But the company has managed to thrive, sucking up more of America’s critical infrastructure, from highways to airports to power stations. And the Biden administration could give them an even greater advantage.
We know that Biden has proposed legislation that would spend trillions of dollars on infrastructure projects nationwide. Previous iterations of Democratic infrastructure bills used “infrastructure banks” to leverage public money with private investment, and cities and states often combine public funding in “public-private partnerships” with companies to design, build, or operate infrastructure assets.
That sets up very well for an institution like Macquarie. The fact that it’s raising billions for a renewable energy fund suggests that it’s preparing to capitalize off whatever comes out of Washington. This is the company’s main mission: to “see areas of opportunity and position themselves better than most,” as analyst Brett Le Mesurier told The Sydney Morning Herald.
That should give people pause. Macquarie’s track record includes bankruptcies, bloated budgets, and consumer price-gouging. “Areas of opportunity” refer to Macquarie’s ability to profit, often off of individual misery. The Biden infrastructure program cannot allow private interests to strike deals that allow the selling off of public assets. Public-private partnerships should be prohibited from the legislation, or at least restricted to companies without histories of bankruptcies and fleecing the public. In other words, we should be very careful before ever opening up public funds to Macquarie.
