Bank of America makes a windfall in trading revenue during Texas blackout

The Texas electric grid failure in the severe winter storms last month brought a windfall for the Bank of America in hundreds of millions of dollars in trading revenue from the Texas energy market.

The electric grid failure led to power prices surging across Texas as private suppliers were forced to buy power in the open market to meet their obligations. The bank’s Houston-based energy trading group had electricity contracts that soared in value when wholesale Texas power prices rose 10,000 percent to a cap of $9,000 a megawatt-hour in the third week of February.

Rebecca Babin, a senior equity trader at CIBC Private Wealth, noted that Texas’s unregulated market exacerbates the price swings as energy producers are forced to buy megawatts in the open market.

Bank of America Office in Beverly Hills

Power sold on Texas’s main grid likely totaled $10 billion based on extraordinarily high prices and demand, according to Wade Schauer, research director of America’s power and renewables at Wood Mackenzie. The Electric Reliability Council of Texas tried to regulate the prices in order to bring some relief to the chaos.

Bank of America is a part of the Texas energy market and trades in power and gas, selling products to electricity providers and others to help hedge against fluctuating prices. This resulted in BofA with an inventory of power contracts that surged in value during the blackouts. “The volatility of the energy market has heightened the value of risk management,” the bank’s website says.

Almost half the state’s capacity could not operate as the arctic freeze blocked supplies of natural gas, froze coal piles and iced wind farms.

The Texas electricity market is unique in the sense that it is the only one with its own stand-alone electricity grid. The state’s deregulated power market is fiercely competitive. ERCOT oversees the grid, while power generators produce electricity for the wholesale market. Some 300 retail electricity providers buy that fuel and then compete for consumers.

Before the storm, the state’s average retail price for electricity was at 8.6 cents per kilowatt-hour; around one-fifth lower than the national average and about half the cost of California’s.

There is not much information about how much the banks participating in the energy market have benefitted. But Macquarie, the Australian bank with Houston-based energy business, reported gains of A$300m (US$234 million) related to natural gas trading, raising its annual group profit by 5-10 percent. “So far we’re only hearing from the losers, and furthermore, we’re only hearing what the losers have chosen to tell us,” said Ross Baldick, an emeritus professor of engineering at the University of Texas at Austin.

Editorial credit: Tero Vesalainen / Shutterstock

Anna Domanska
Anna Domanska is an Industry Leaders Magazine author possessing wide-range of knowledge for Business News. She is an avid reader and writer of Business and CEO Magazines and a rigorous follower of Business Leaders.

Recent Posts

Strong iPhone 12 sales could boost Apple’s Q3 2021 earnings

Strong iPhone 12 sales could boost Apple’s Q3 2021 earnings

Will Apple manage to post solid earnings in Q3 2021? Here’s what Wall Street’s top analysts have to say ahead of Apple’s Q3 2021 earnings report today.
7 hours ago
Tesla earnings top $1 billion for the first time

Tesla earnings top $1 billion for the first time

Tesla earnings not only blew past analyst expectations but also marked the first time the automaker’s quarterly profit joined the three-comma club.
9 hours ago
Elon Musk tweet pushes Dogecoin prices up again

Elon Musk tweet pushes Dogecoin prices up again

Dogecoin was launched as a joke in 2013. The cryptocurrency is up a staggering 6,000% compared to last year’s prices due to wild speculations.
10 hours ago
Amazon to hire a crypto lead, may soon accept payments in cryptocurrency

Amazon to hire a crypto lead, may soon accept payments in cryptocurrency

The product lead will develop the full marketing strategy from customer experience to technical development to launching it.
1 day ago
Billionaire CEO Elon Musk Shares the Brutal Truth about Life as an Entrepreneur

Billionaire CEO Elon Musk Shares the Brutal Truth about Life as an Entrepreneur

“I would say I’ve had some pretty tough life experiences and Tesla’s probably responsible for two-thirds of all personal and professional pain combined, to give you a sense o
3 days ago
AT&T, Airbnb & UPS among firms to face Akamai’s global outage

AT&T, Airbnb & UPS among firms to face Akamai’s global outage

Global outage causes Akamai Technologies to re-think cyber securities.
4 days ago