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Kinder’s $1 Billion Texas Crisis Gain Foreshadows More Windfalls

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Gerson Freitas Jr. and Mark Chediak
·3 min read
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(Bloomberg) -- It’s more than two months after the deadly winter storm that paralyzed Texas, but it’s only now that some of the largest financial winners and losers are emerging.

Kinder Morgan Inc. shocked many in the energy industry when it reported a $1 billion dollar gain late Wednesday due to wildly profitable gas sales during the freeze. The earnings report caught analysts off guard and raises the prospect of more surprises to come in the latest round of quarterly earnings.

Kinder’s bombshell disclosure “will surely set in motion a thematic that will likely carry through” quarterly earnings season, said Timm Schneider, a Citigroup Inc. analyst. “Further, we view KMI’s large beat as a ‘zero-sum-game,’ meaning someone (i.e. buyers of the gas) had to pay the bill, which could make for some interesting utility earnings calls.”

Kinder’s sprawling network of pipelines and gas storage facilities positioned it to ramp up shipments to power generators at the height of the emergency as wells and pumping stations froze.

Other Kinder peers seen as potential winners from the Arctic blast include Enterprise Product Partners LP and Energy Transfer LP. There is ample room for upside: Prior to Kinder’s announcement, analysts were forecasting the lowest first-quarter adjusted profit per share in four years for Enterprise. Meanwhile, Energy Transfer was expected to bounce back from an atrocious year-earlier performance but still fall short of 2019 results.

Energy Transfer Co-Chief Executive Officer Marshall McCrea foreshadowed a banner quarter before the storm had even ended, telling investors during a conference call that the company did “exceptionally well” as gas shortages spurred orders for fuel stowed in underground caverns.

READ: Texas Missed Out on a Cheap Fix to Its Fragile Power Grid

The pipeline giant created by billionaire Kelcy Warren is facing backlash from at least one Texas utility that objected to the rates it was charged for gas. CPS Energy has sued Energy Transfer as well as BP Plc, Chevron Corp. and others for allegedly charging 15,000% more than the typical price for gas.

On the other side of the market, the list of self-admitted or probable losers is long.

Atmos Energy Corp., a Dallas-based utility that ships gas to 3 million homes and businesses across eight states, racked up $2.5 billion in fuel costs during the disaster. Calpine Corp., Vistra Corp. and NRG Energy Inc. all said disruptions to gas deliveries interfered with their ability to generate power just as frigid weather sent residential demand soaring.

‘Wealth Transfer’

Vistra has gone as far as to warn the event may have slashed $1.3 billion in profit.

“There was a significant amount of wealth transfer from power to gas,” Vistra Chief Executive Officer Curt Morgan told a state legislative hearing in February. “We’re the guy sitting in the middle, getting it from both ends.”

The burden is so heavy on municipal utilities and rural energy cooperatives that Texas lawmakers are considering a rescue that could include sales of low-interest 30-year bonds backed by extra charges on residential bills.

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