April 15, 2024
The Goldman Sachs-backed power company is making a play to reach more Americans' homes


Omar Marx LightRocket | getty images

According to federal data, it includes energy networks, mostly in the Northeast, that provide electricity to 190 million Americans.

The idea that the Goldman-linked company aims to make waves by providing an essential service to Americans could lead to scrutiny of the bank and its efforts to increase revenue through so-called alternative investments. It also takes Goldman into an industry, albeit through an intermediary, that critics have called a hotbed of consumer abuse.

The wave of energy deregulation that began in the 1990s gave rise to a new wave of retailers promising savings over incumbent utilities. State attorneys general, consumer groups, and industry watchdogs have alleged that some of these retailers use deceptive marketing and billing practices to pass on higher costs to customers. One estimate is that customers have paid $19.2 billion more than required in unregulated states over a decade.

Rhythm, which calls itself the largest independent green energy provider in Texas, positions itself as an honest company in a field of less honest players. The startup, which began offering retail energy plans to Texans in 2021, avoids rivals’ teaser rates and hidden fees, it said.

Rhythm says on its website, “While some of our competitors like to charge up to 18 hidden fees, we are proud to charge exactly 0.”

But Rhythm’s Texas customers will pay an average of 18 cents per kilowatt hour in 2022, five cents per hour more than what customers of state-regulated providers pay, according to U.S. Energy Information Administration data.

That figure does not include the impact of credits provided to solar customers, which reduce their costs, according to a person with knowledge of the company who was not authorized to speak on the record.

Although there have been “bad actors” in the residential electricity sector, there are also “great retailers with innovative products,” energy consultant James Bride said in an interview. “Realizing the potential there depends on the company’s ethical behavior.”

Online reviews, interviews with current and former customers, and conversations with watchdogs found nothing that contradicts Rhythm’s claims of fair dealing and good service.

“Goldman Sachs invests across a number of industries in our private funds on behalf of clients,” a spokesperson for the New York-based bank said in response to this article. “Many of those companies operate businesses that serve retail customers. This is nothing new.”

Goldman’s record of dealings with the US consumer is checkered: the bank was accused of profiting from the 2008 housing bubble by betting against subprime securities. Years later, the bank named its consumer endeavor Marcus to distance itself from that memory. But the consumer division was dragged down by rising losses, brain drain and unwanted regulatory attention.

Goldman CEO David Solomon has now tied his fortunes to the bank’s asset management division, calling it a “growth engine” after the retail banking crisis. As part of that effort, Goldman aims to raise more client money for private equity funds to help its goal of generating $10 billion in fees this year.

Private equity firms have transformed the energy landscape in the country’s largest electricity markets. For example, in the PJM region, including Pennsylvania, New Jersey and Maryland, private capital owns about 60% of fossil fuel generators and faces less regulatory oversight than legacy utilities, according to an August report from the Institute for Energy Economics and Financial Analysis. Enjoys.

“The ownership situation is important,” wrote report author Dennis Wamstead. “Utilities are overseen by state regulators who have a vested interest in keeping ratepayers’ costs under control; private capital is largely free from that oversight.”

Rhythm, which buys energy from wholesale markets and sells it to consumers, first made headlines in November when its application to the Federal Energy Regulatory Commission was revealed.

The move made Goldman Sachs, through its private equity arm, one of the first Wall Street firms to sell retail energy contracts to households, according to Tyson Slocum, energy and climate director at consumer watchdog Public Citizen.

Slocum noted that Goldman’s trading arm deals in energy contracts and, along with other creditors, owns a fleet of fossil fuel generators along the Northeast Corridor, while a separate division formed a solar energy firm called MN8 Energy. Have done. He said the impact on trading in retail sales, energy production and electricity contracts could potentially lead to abuses.

“Goldman knows how to execute, they own and operate energy assets and they are involved in the futures and physical markets,” Slocum said. “They’ll be able to manage it well. Will customers do the same? I’m not sure.”

A company spokesperson said Goldman has “strict information barriers between public and private businesses” that prevent such self-dealing.

In a statement to CNBC, Rhythm CEO PJ Popovich said his company “has never purchased power from Goldman Sachs or power generation assets owned or affiliated with Goldman Sachs, nor has Rhythm ever purchased power from Goldman Sachs or any of its affiliates.” Has purchased physical or financial power from an affiliate.” In commodity markets.”

Rhythm operates “autonomously” from West Street Capital Partners, the Goldman Sachs private equity fund that is listed as an owner in federal filings, according to the person who was not authorized to speak on the record for the company.

Still, Goldman Sachs has been involved with Rhythm since its founding in 2020, and the bank has kept at least one director on Rhythm’s board, a typical arrangement in the private equity industry, according to this person.

According to Columbia Business School finance professor Michael Ivens, private equity funds can influence portfolio companies in a number of ways, including the appointment and firing of CEOs and signing off on acquisitions and company sales.

But the main focus of Goldman Sachs managers — ensuring profitable outcomes for West Street Capital Partners investors and increasing the chances of participating in future rounds — should be instilling discipline in the companies’ management, Ivens said.

“People think a lot of bad things about private equity, but Goldman has always been a big concern,” Ivens said. “Will anyone buy this company five years from now at a higher price than they paid?”

Source: www.cnbc.com

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