Kris Kobach's office sues middleman for alleged market manipulation during Kansas storm

Kansas Attorney General Kris Kobach's office has filed suit against a key firm that serves as a middleman for Kansas gas utilities, arguing it manipulated market prices during a 2021 winter storm that saw temperatures plummet and gas costs skyrocket across the Great Plains.

The lawsuit, filed earlier this month in Shawnee County District Court, is one of the first state actions related to potential market manipulation during Winter Storm Uri, which slammed Kansas almost exactly two years ago.

More:What will happen to natural gas price-gouging investigation under new attorney general?

Kobach's office alleges that Macquarie Energy engaged in an artificially inflated sale of natural gas in order to drive the benchmark used to set gas prices upwards and thus increase costs for utilities.

Major gas and electric utilities in the state have successfully petitioned the Kansas Corporation Commission to allow them to assess charges to consumers for years and, in some cases, over a decade to reap those historically high costs.

Kansas Gas Service consumers, for instance, are paying a little over $5-per-month for as much as a decade.

Shortly after Uri slammed Kansas, then-Attorney General Derek Schmidt announced he was launching a price-gouging investigation under the state's consumer protection laws. Few details about the investigation emerged, beyond Schmidt's decision to sign a contract with a Florida-based law firm to support the investigation last year.

Lawsuit argues price gouging resulted in $50 million in Kansas costs

In the lawsuit, Kobach's office alleges that Macquarie, which supplies Kansas Gas Service, Black Hills Energy and other Kansas firms, purposefully bought gas at an inflated price in a bid to influence key benchmarks for setting prices.

Deputy Attorney General Frances Oleen wrote in the lawsuit that it was the highest price ever paid for gas from the Southern Star Central Gas Pipeline, a key pipeline in the Midwest.

"Indeed, no one has ever paid any fixed price for Southern Star gas even remotely close to the price that Macquarie agreed to pay," the lawsuit said. "The fixed price that Macquarie agreed to pay ... is — and at the time of its transaction (and delivery) was — an outlier: far above, and disconnected from, all other contemporary Southern Star transaction prices."

The upshot, the lawsuit argued, was that the higher price warped two key price benchmarks that ultimately helped Macquarie's bottom line.

Much of the higher-than-expected energy costs can be explained as "the unfortunate result of normal market forces," with supply constraints from lower gas production in Texas, Oklahoma and the gulf coast, which were also mired in a deep freeze.

A Federal Energy Regulatory Commission report found that "when temperatures fell, regional production dropped," in some parts of the country as much as half of what the typical output was before the storm.

But Oleen said "a specific and specifically-identifiable subset" of the excess costs can be attributed to Macquarie's actions, which the state said they believed could only be explained as an attempt to manipulate the market. The lawsuit estimates it led to more than $50 million in excess costs.

The suit alleges Macquarie violated the federal Commodity Exchange Act, which governs federal regulation of all commodity trading in the country, and seeks damages for the company's alleged behavior.

Macquarie declined comment, citing pending litigation.

States across the country have launched investigations into potential price gouging, though actual lawsuits to date have been rarer. Oklahoma's former attorney general initially threatened a lawsuit against gas producers and marketers, though he later walked it back after it appeared he misinterpreted the state's consumer protection laws.

In March 2021, the Kansas town of Mulberry in Crawford County, as well as many of its 500 residents, sued energy giant British Petroleum, alleging price gouging.

This article originally appeared on Topeka Capital-Journal: Kris Kobach sues over Winter Storm Uri market manipulation in Kansas