By Tyson Slocum
In an unreported regulatory filing in October, a private equity firm controlled and owned by Goldman Sachs applied for permission to make wholesale sales of electricity on behalf of its company, Rhythm Energy. If approved, Goldman Sachs would be the first Wall Street bank to sell retail electricity contracts to households.
Rhythm Energy is what’s known as a competitive retail electricity supplier, soliciting households to sign a contract for it to provide electricity utility service. The application notes that Goldman Sachs’ Rhythm Energy “is a retail electric provider currently operating in Texas that is seeking to expand its business to engage in power marketing through participation in the Day-ahead and Real-time Markets of various Independent System Operators and Regional Transmission Organizations, as well as in regions and states that have not implemented organized markets” where it will “purchase energy through its participation in the Day-ahead and Real-time Markets, which it will resell to Rhythm Retail LLC to be sold to retail consumers” (it’s FERC Docket ER24-116).
Goldman is stepping into a competitive electricity supplier industry known to frequently employ unfair and deceptive marketing and sales tactics—disproportionately impacting low-income communities, communities of color and the elderly—costing families $19.2 billion in higher utility bills from 2010 through 2019, according to a Wall Street Journal analysis.
The National Consumer Law Center concludes that these retail electricity marketers not only are price-gouging families, but engaging in widespread greenwashing. The Massachusetts Attorney General concludes that “low-income consumers and communities of color continue to be disproportionately harmed” by these predatory retail electricity suppliers, and stated in testimony that “we have seen again and again Massachusetts residents being targeted by competitive electric suppliers. And these suppliers use deceptive marketing tactics that hide the fact that their products do not provide consumers with meaningful savings and in fact, can result in higher utility bills.” Earlier this year we joined with other consumer advocates in calling on the Federal Trade Commission to better protect consumers from predatory retail electricity suppliers.
Goldman Sachs’ investment vehicle for this foray into household electricity is through its private equity arm, West Street Capital Partners—so named because it shares offices at Goldman Sachs’ global headquarters at Manhattan’s 200 West Street.
Goldman Sachs—a Bank Holding Company subject to regulatory oversight by the Federal Reserve—controls this private equity firm and is able to direct its holdings like Rhythm Energy despite the apparent conflict with the Volker Rule’s prohibition on banks sponsoring private equity funds and the BHC’s limits on controlling non-bank businesses.
Goldman Sachs’ West Street Capital Partners utilizes The Maples Group as a “rent-a-director” firm to stock its various private equity shell companies with rented “independent” directors, as Goldman Sachs must adhere to the Investment Company Act of 1940 and its requirements for independent directors. I associated this scheme “like a dating site, choose your director”. West Street Capital Partners has at least 7 investment shell companies registered with the SEC, all of which feature Maples Group rental directors occupying the directorships. Scott Huff and Daniel Grugan each appear on five West Street boards; Benoit Sansoucy in the Cayman Islands appears on three; and the Luxembourg crew of Constanze Schmidt, Stephane Lachance and Paul Brogan on two boards.
Goldman’s West Street Cayman Islands-director-assembly-line scheme mirrors the one that Public Citizen exposed in 2020 when we uncovered that Goldman Sachs hired the same three rental directors from Cayman Islands firms to serve on 60 different private equity shell companies operated by Goldman. David Dayen with the American Prospect did a great job covering our work.
Key to Goldman’s ability to make money from selling retail electricity to households is having a sizable financial power trading business buoyed by control over generation. On October 24, FERC approved allowing Goldman Sachs to control GenOn’s fleet of fossil fuel power plants out of bankruptcy (Avenue Capital Group, Prudential Financial, Graham Goldsmith’s Cross Ocean, and Stone Point Capital-managed Trident Capital are the other firms controlling it along with Goldman). GenOn detailed its holdings to FERC in its application in docket EC23-117:
- Blossburg Power, a 19 MW gas fired power plant in Pennsylvania.
- Brunot Island, a 259 MW gas power plant in Pittsburgh, PA.
- Chalk Point, eight gas- and oil-fired power plants with a total generating capacity of 1,631 MW on the Patuxent River outside Washington, DC.
- Dickerson Power, two natural gas-fired generation units with combined capacity of 294 MW on the Potomac River outside Washington, DC.
- Gilbert Power, a 444 MW facility on the New Jersey/Pennsylvania border.
- Hamilton (18 MW), Mountain (36 MW), Orrtanna (18 MW), Shawnee (17 MW) and Tolna (36 MW), oil fired power plants in Pennsylvania.
- Hunterstown Power, a 60 MW gas power plant a ten minute drive from Gettysburg National Military Park.
- Morgantown, four oil-fired generation units with combined capacity of 192 MW on the Potomac River outside Washington, DC.
- New Castle, a 310 MW gas fired power plant in Pennsylvania.
- Niles Power, a 25 MW oil fueled power plant in Northeast Ohio.
- Portland Power, a 169 MW gas power plant on the Delaware River at the New Jersey/Pennsylvania line.
- Sayreville, a 200 MW gas fired power plant in New Jersey outside of Staten Island.
- Shawville, a 600 MW natural gas power plant at the Pennsylvania/New York border.
- Titus Power, a 27 MW oil-fired power plant on the Schuylkill River outside Philadelphia.
- Warren Generation, a 50 MW gas power plant on the Allegheny River in Pennsylvania.
In addition to this sprawling fossil fuel empire, Goldman’s trading arm J. Aron & Co. controls 423 MW of electricity that sinks in CAISO pursuant to long-term firm agreements, along with Goldman’s solar portfolio in MN8 Energy, which it spun off from Goldman Sachs Renewable Power.
While this push into selling retail electricity contracts to households appears to be the first by a Wall Street bank, the private equity giant ArcLight Capital Partners applied at FERC in November 2022 (docket ER23-367) for permission to make wholesale power sales on behalf of its new retail marketing affiliate OnPoint Energy that signs households up for electric utility service in Illinois, Ohio, Pennsylvania and Texas. Oil giant BP applied to sell households electricity in Illinois, Ohio, Texas, California, and Pennsylvania (FERC Docket ER21-1716), and Shell turned its 2017 acquisition MP2 Energy into Shell Energy Solutions that markets electricity to households, and then adding Inspire Energy in 2021.
Aligning control over wholesale markets with locking consumers into retail contracts can be lucrative, as we pointed out when Vistra was acquiring a retail electricity supplier that matching generation and wholesale trading will result “in increased sales to its retail subsidiaries, the highest margin channel for wholesale length.”
It’s these profit margins in the retail electricity business that explain Goldman’s foray into selling utility service to households after it largely abandoned its Marcus retail banking for the masses to instead just focus on the higher returns of focusing on wealthy clients, and is exiting its ill-fated retail credit card partnership with Apple.
Goldman Sachs clearly sees profits to be made selling American families electricity. The question is why the Federal Reserve is allowing Goldman Sachs to be in the business of marketing electricity to households.