HOUSTON (CN) - GDF Suez illegally manipulates the Texas market by taking its power plants offline during times of tight supply, which drives up electricity prices and creates havoc for commodities traders, two traders claim in Federal Court.
Aspire Commodities and Raiden Commodities sued GDF Suez Energy North America Inc., claiming its price fixing scheme violates the Commodities Exchange Act.
The lawsuit accuses GDF Suez and others of using the same scheme that Enron et al. used to create the 2001-2001 California electricity crisis. During periods of peak demand, taking even a small amount of power offline, or threatening to do so, can send the market over the edge.
Based in Houston, GDF Suez North America boasts 13,863 megawatts of generating capacity from its dozens of power plants, and has market stakes in Texas, New England, Canada and Mexico.
GDF Suez North America is part of the French multinational utility GDF Suez S.A.
The lawsuit focuses on GDF Suez's role in the Texas market, which is controlled by The Electrical Reliability Council of Texas - a nonprofit regulated by the Public Utility Commission of Texas - which manages the grid for most of the state.
ERCOT balances the supply of electricity with demand based on the "market price" for electricity, aka the "Locational Marginal Price," according to the complaint.
"The LMP changes throughout the day, in five-minute intervals, as real-time conditions of supply and demand (and other factors such as transmission congestion) change. As a general matter, when supply is low relative to demand, the LMP is high to incent more generation. When supply is high relative to demand, the LMP is low to incent less energy generation." (Parentheses in complaint.)
With 635 people moving to Texas every day, the state's electricity generating capacity has struggled to keep up with demand on hot summer days with air-conditioning units blasting.
As an incentive for power companies to invest in more generating capacity in Texas ERCOT raised the maximum LMP to $5,000 per megawatt hour in 2013, up from $2,500 in 2011, and plans to raise the cap to $9,000 in 2015.
A megawatt hour equals roughly the amount of electricity used by 330 homes in an hour.
ERCOT's $5,000 market cap is much higher than that set by other U.S. grid operators.
For example, PJM, the grid operator for 13 eastern states, caps the price at $1,000 per megawatt hour to protect consumers from soaring electrical bills.
According to the lawsuit, GDF Suez is allowed to operate freely within the Texas market due to its relatively small share.
"GDF Suez controls just less than 5 percent of the electricity generation within ERCOT and therefore PUCT considers it a 'small fish.' PUCT does not attempt to regulate GDF Suez's generation decisions. It swims free," the complaint states.
The plaintiff commodity traders claim that Texas regulators' assumption that "small fish" cannot manipulate electricity prices is incorrect.
"PUCT's conclusion that generators controlling less than 5 percent of generation capacity within ERCOT cannot affect LMP prices through withholding energy production is simply wrong," the complaint states. "During times when there is barely sufficient supply to meet demand, the withdrawal of even a small amount of energy can cause LMPs to increase dramatically, even up to the $5,000 cap."
The small fish rule is the "the heart of GDF Suez Energy North America Inc.'s alleged commodities market manipulation schemes," plaintiffs' attorney Barry Hammond said in a statement announcing that co-plaintiff Raiden Commodities had filed a petition with the Public Utility Commission of Texas on April 21, requesting a repeal of the "small fish" exception.
GDF Suez's manipulations also cause chaos in commodities markets where traders make decisions based on "information relevant to expected supply and demand," the traders say in their lawsuit.
"Neither the market nor traders have the ability to consider GDF Suez's undisclosed intent and decision to economically or physically withhold otherwise available energy," the traders add.
Aspire Commodities estimates it lost $20 million on the futures market in the past two years due to GDF Suez's misconduct, while Raiden says it "has lost significant amounts making virtual trades a result of GDF Suez's manipulation."
Bottom line, the traders say, what GDF Suez is doing is illegal under federal law.
"While ERCOT might tolerate GDF Suez's exploitation of its 'small fish' exception and GDF Suez's intentional manipulation of its LMP prices for GDF Suez's gain, GDF Suez's actions violate the Commodities Exchange Act," the complaint states.
The traders seek damages for violations of the Commodities Exchange Act and conspiracy, and an injunction "ordering GDF Suez to cease its economic and physical withholding of generation."
Julie Vitek, vice president of communications for GDF Suez North America, would not comment on the lawsuit.
"We have no comment for the press on a pending legal matter," she said.
Also named as defendants are Ennis Power Company, Wise County Power Company, Midlothian Energy, Hays Energy, Wharton County Generation, and Coleto Power.