Shortly after a February winter storm caused massive blackouts across Texas, Berkshire Hathaway Energy executives introduced a $8.3 billion plan to build 10 natural gas plants that could provide emergency power. While the proposal grabbed headlines, it failed to gain traction during the legislative session.
Now, Warren Buffett’s firm is earning the Texas energy industry’s attention for a different reason. MidAmerican Energy Services, one of Berkshire Hathaway’s subsidiary companies, is facing a class action lawsuit and dozens of complaints filed with state regulators due to its attempts to charge Texas businesses, churches and nonprofits for massive fees incurred during the storm — including customers who signed up for fixed-rate electricity plans.
On Tuesday, 17 MidAmerican clients in the Fort Worth area filed a formal complaint with the Public Utility Commission alleging that MidAmerican violated the terms of its contract, which they say promised to include “ancillary services” fees as part of the fixed price. All 17 organizations negotiated their MidAmerican contracts with the assistance of Thigbe, an Aledo-based energy consulting firm that filed the complaint.
Affected customers range from nonprofits like the Tarrant Area Food Bank, Hope Farm Inc. and Cornerstone Assistance Network to religious organizations such as Trinity Bible Church and Pentecostal Church of God, which is facing the group’s highest charge of $61,836. The formal complaint kicks off a legal proceeding that will allow all 17 organizations, and potentially others across the state, to present their case and seek a ruling from the Public Utility Commission.
The food bank, which launched into action to provide water and food at Fort Worth’s relocation shelters during the power crisis, has been charged $48,409 in extra fees, or about eight times what the bank pays to power its main warehouse each month. Tarrant Area Food Bank has refused to pay the extra charges until its dispute with MidAmerican is resolved, said Julie Butner, the organization’s president and chief executive officer.
“It’s just really frustrating because this is the reason why we negotiate a locked-in agreement, so that we don’t have to bear the consequences of volatility that often occurs in the energy market,” Butner said. “That $48,000 is now going to Buffett’s company instead of people in our community in need.”
The formal complaint was filed the same day as J&M Plastics, located in Dallas suburb Royse City, filed for class action status. In April, J&M received a bill of almost $54,000 for ancillary service fees, leading the company to sue MidAmerican for violations of the Texas Deceptive Trade Practices Act and breach of contract, among other claims.
After a year of economic crisis induced by the COVID-19 pandemic, North Texas business owners interviewed by the Star-Telegram say the surprise arrival of MidAmerican’s charges over the past two months has been especially painful.
Mike Cohen, the chief executive of Kelli’s Gift Shop Suppliers based in Carrollton, said his company took a huge hit due to COVID-19, largely because hospital gift shops cut their hours or closed completely during the pandemic. The company recently paid $27,000 to MidAmerican after Cohen determined it was “not a fight we were going to be able to win.”
“We’re coming off a year that has been the most painful year we’ve had in this business,” Cohen said. “Then, as we’re starting to see things open up and we are starting to see hospitals get a little better, we get popped with this bill. It’s a significant amount of money for us.”
‘Ancillary services’ fees at center of conflict
Ancillary services — which are purchased by the Electric Reliability Council of Texas to help maintain the stability of the grid — were in high demand and low supply during the storm, leading to an astronomical surge during the week of Feb. 14. The market price for ancillary services skyrocketed into the $20,000s, well above the cap of $9,000 recommended by Texas’ independent market monitor, Potomac Economics.
In late February, MidAmerican warned its residential and business customers that they should expect “significant increases in ancillary charges” as a result of the storm unless the legislature took action.
Between Feb. 13 and Feb. 21, MidAmerican’s ancillary services bill was 100 times larger than its average monthly fee, company spokesperson TJ Page said at the time. All retail electricity providers must pay the ERCOT charges in order to stay in the Texas market.
“As a majority of MidAmerican Energy Services’ customers, including all of its residential customers, are on fixed energy supply rate contracts, ancillary fees paid to ERCOT exceeded MidAmerican Energy Services’ cost for actual energy during the defined period,” Page said in February.
MidAmerican, which provides electricity to about 15,000 customers in Texas, is an affiliate of a regulated utility serving much of Iowa, according to The Des Moines Register. At least 290 customers have filed disputes with MidAmerican arguing they were wrongly charged for ancillary service fees or rising natural gas prices in February, according to internal company documents obtained by the Star-Telegram.
By late May, 88 customers had filed informal complaints with their state regulators about the extra costs, including 83 in Texas and four in Iowa, according to a MidAmerican memo sent to employees. At least six of those complaints were closed by commission staff “with no further action required and no notices of noncompliance,” the memo reads.
To the knowledge of Mike Brasovan, the president of energy consulting firm Thigbe, MidAmerican is the only company in the Texas market attempting to recoup its ancillary costs by passing them on to its largest customers. Because MidAmerican is only charging clients who use more than 50 kilowatts of electricity per month, the policy has not affected residential customers.
“Every other supplier we have, for all of our 3,000 other meters that we manage, the price stayed the same,” Brasovan said. “There was no attempt to pass through any extra cost because those suppliers knew it was their responsibility to honor the contracts that they had.”
MidAmerican’s contracts include language where costs incurred during specific events not under the control of MidAmerican are passed on to the customer, Page said in a June 1 statement. Those events include the increased ancillary charges due to winter storm Uri, changes in rules from the Public Utility Commission or increased delivery service charges, Page wrote.
The Des Moines-based company understands that customers are frustrated and staff members continue to have conversations “to work through their concerns,” Page said. He added that MidAmerican has provided clients with specific contract language allowing for the charges and continues to cooperate with state agencies investigating complaints.
“While we understand that we are not the only company passing on these fees, we remain focused on working with our customers to provide assistance where possible, such as through payment plans and ensuring we are providing complete and transparent information at all times,” Page said.
MidAmerican’s offered payment plan requires customers to pay in installments across five months, plus an additional “5% deferred payment plan penalty,” according to documents obtained by the Star-Telegram. Since the winter storm, MidAmerican has not issued formal disconnection requests due to nonpayment, Page said, though MidAmerican’s standard collection notices “remind customers of the potential of disconnection of service.”
Class action lawsuit, complaint dispute high fees
MidAmerican’s characterization of its contract has been disputed by several customers, including those represented by Brasovan and J&M Plastics, which announced its lawsuit on Tuesday.
In its form letter to clients who disputed the ancillary charges, MidAmerican points to a contract clause stating that “any future changes in the business practice or business protocols of” ERCOT or a transmission and delivery provider, such as Oncor, could lead to “a separate adjustment” on customers’ bills. Those adjustments could include transmission tariffs, delivery charges or ancillary services fees, according to the contract.
But, according to Brasovan, there was no change in ERCOT or Oncor’s business practices — just skyrocketing prices caused by the fallout of the winter storm. Energy companies could have bought more ancillary services before the storm to hedge against the risk of higher fees or offered higher fixed-rate prices to cover the fees, he said.
“If they’re not willing to weather the risk, they should get out of the market,” Brasovan said. “It doesn’t mean that they get to pass through that risk to their customers. The customers are relying on them to take that risk.”
There were also no changes in law related to ancillary services fees, though MidAmerican did ask its customers to contact the Public Utility Commission and lawmakers in support of policies to significantly reduce ancillary costs and resettle “potentially erroneous overcharges” incurred during the storm, Page wrote. The Texas Senate passed a bill doing just that in mid-March, but the House had little appetite for repricing, according to the Texas Tribune.
“They’re just claiming that because it says ‘ancillary services’ in that paragraph of the contract that they get to pass those costs through, regardless of the fact that for the other 24 months of the contract, that price has never changed, even though ancillary service costs change every hour,” Brasovan said. “They haven’t tried to claim this before, and the rest of the contract clearly lists those as fixed costs along with every other aspect of the cost.”
MidAmerican’s marketing materials included line-item lists of services that are part of the company’s fixed price. One list obtained by the Star-Telegram marked a number of ancillary service charges, including responsive reserve services and emergency interruptible load services used to prevent blackouts, as “included in price.” The charges marked as “pass-through” were taxes issued by the Public Utility Commission and energy delivery fees.
“MidAmerican’s proposal line-items individual components of electric service,” a handout titled “Key Contract Benefits” reads. “This approach ensures that the energy price is fixed and guaranteed not to change during the term of your agreement, and the non-energy charges are priced and billed in a cost-effective manner.”
Customers take their arguments to court, commission
The company’s exclusion of residential and smaller commercial customers from ancillary service fees is another key point of contention among MidAmerican’s critics.
When organizations using more than 50 kilowatts of energy per month signed up with MidAmerican, they agreed to waive certain customer protection rules in exchange for other considerations, such as favorable rates or services. Those rules include the prohibition of “fraudulent, unfair, misleading, deceptive or anticompetitive acts and practices” by retail providers.
In turn, the Public Utility Commission cannot resolve complaints through its informal process if those customer protection rules do not apply, according to Andrew Barlow, the commission’s director of external affairs. Barlow said he could not speak specifically about complaints against MidAmerican since they are part of an ongoing investigation.
“After informing them of their right to seek alternative dispute resolution and to pursue a formal complaint at the Commission, our team will generally close those cases,” Barlow said in an email. “That effectively leaves the ball in their court.”
In his formal complaint on behalf of Fort Worth area customers, Brasovan wrote that “not charging these costs to smaller, presumably better protected customers that have substantially the same contract language” is indicative of MidAmerican “knowing they cannot fully justify these unauthorized costs.” That sentiment was echoed by Derek Potts, a Houston lawyer representing J&M Plastics in its class action lawsuit.
“MidAmerican has already acknowledged that it can’t pass through these same costs to their residential and small business customers, because of the Public Utility Commission’s consumer protection regulations,” Potts said in a statement. “But the company’s still trying to unlawfully use a statewide disaster to take advantage of and price-gouge thousands of larger commercial customers.”
Brasovan has asked the commission to allow other interested customers to join his complaint, leaving the door open for businesses across the state to add their arguments to the record.
Outside of protesting MidAmerican’s ancillary service charges, the Tarrant County Medical Society is facing down a $35,000 bill after its indexed contract led to massive increases in hourly electricity market prices.
Brian Swift, the society’s executive vice president and chief executive, filed an informal complaint with the Public Utility Commission, which informed him that the society had waived its customer protections and agreed to pay market prices. Now, Swift says he’s going to get onto a fixed-rate plan to avoid the risk that comes with indexed or variable contracts.
“Our biggest disappointment is that this is $35,000 that would be better spent continuing to help our patients and helping the people that really need help here in Tarrant County,” Swift said. “We obviously have learned the hard way. There just seems to be so much confusion around what options are available to the consumer.”
Regardless of how the Public Utility Commission handles the complaints of his Tarrant County clients, Brasovan knows one thing for sure: He won’t send any customers there in the future. While Page said MidAmerican remains active in the Texas energy market, Brasovan said he wouldn’t be surprised if the company exits the state after “collecting as much as they can.”
“We’re not willing to take this without a fight,” he said. “We have a good case, and we intend to fight it as much as we can to protect our customers.”