If the Texas Legislature wanted the Electric Reliability Council of Texas to be immune from civil lawsuits, it would have passed laws stating so, lawyers representing two large energy companies told the Texas Supreme Court during oral arguments Monday.
San Antonio-based CPS Energy and Dallas-based Panda Power Funds have sued ERCOT separately in their hometown courts seeking hundreds of millions of dollars in damages for allegedly erroneous decisions that ERCOT made that negatively impacted the companies.
But lawyers for ERCOT argue that the grid operator is technically a state agency that is immune from civil lawsuits and that any such damages claim must be decided by the Texas Public Utility Commission, which certifies and regulates ERCOT’s activities.
The two unrelated cases were argued Monday to the nine justices of the Texas Supreme Court, which is not expected to issue a decision until later this spring.
Panda claims that ERCOT committed fraud, negligent misrepresentation and breach of fiduciary duty when it published intentionally inaccurate reports in 2011 and 2012 that projected a “serious and long-term scarcity of power supply.” As a result of ERCOT’s allegedly false market data, Panda invested $2.2 billion to build three new power plants — operations that have not generated the revenue that ERCOT predicted.
CPS Energy, which is San Antonio’s municipal-owned utility, sued ERCOT in 2021 claiming that the grid operator illegally overcharged for electric during Winter Storm Uri, which occurred four days in February 2021 when freezing temperatures and powerful winds caused multiple days of power outages across the state.
While the two lawsuits are unrelated, the high court’s eventual decision in these cases will impact hundreds and hundreds of other active lawsuits filed against ERCOT seeking billions and billions of dollars brought by individuals, small businesses, large energy corporations and insurance companies also impacted by Winter Storm Uri.
“CPS argues that ERCOT improperly set the price of energy. That claim belongs in front of the PUC,” said Elliot Clark, a shareholder at Winstead and lead lawyer for ERCOT. “The PUC has the expert agency knowledge to dispose of that claim.”
“If [CPS] is allowed by this court to pursue the same issues in its hometown district court, then all of those other market participants will abandon the regulatory process and go file suit in their hometown district courts,” Clark argued. “Quite literally, chaos will follow.”
Wallace Jefferson, a former Texas Supreme Court chief justice who also argued on behalf of ERCOT, said the grid operator is “a private organization in name only.”
“The independent organization has no function other than what the state assigns,” argued Jefferson, who is a partner at Alexander Dubose & Jefferson. “It has no autonomy from the state. It has no private interests. Its only interest is in furthering the public’s interest in a reliable grid. It can’t spend a dollar or incur debt without the state’s permission.”
“ERCOT is in no sense of any vision of what a private entity is,” he said.
But lawyers for CPS Energy and Panda Power argued Texas law is clear about ERCOT’s status and it does not have immunity from litigation.
“Despite many opportunities, even after the winter storm, the legislature has never conferred governmental status on ERCOT, which it knows how to do,” former Texas Supreme Court Justice Harriet O’Neill told the current justices Monday on behalf of CPS. “This court should not step in to fill that policy void.”
O’Neill said if the Texas Supreme Court in these cases ruled that ERCOT is “a state actor, it would be a first in the country for an independent system operator, a first for this court for an entity like ERCOT and it would nullify statutory and regulatory indicators that ERCOT is not entitled to immunities protection.”
“This court has been rightly reluctant to not confer government immunity without a clear legislative grant,” she said.
O’Neill pointed out that the Panda case already came before the Texas Supreme Court two years ago after Winter Storm Uri occurred and while the Texas legislature was in session.
“Justice [Jimmy] Blacklock noted that the legislature and executive branches could address the immunity issues then,” she said. “The legislature knew the case was front and center, but they did nothing to make ERCOT a part of the government.”
Lawyers for both sides were peppered with questions from four justices — Jeffrey Boyd, Blacklock, Jane Bland and Brett Busby.
“One of our themes in our jurisprudence is that political accountability — that if you are going to give somebody immunity, there has got to be political accountability,” Justice Busby stated. “If you have market participants who are on a board, it seems like there is a unique danger of political accountability.”
Clark said while there were market participants on the board pre-Winter Storm Uri, there are none now.
“The PUC can give any relief it deems appropriate,” Clark said. “There is nothing that ERCOT does that the PUC cannot control. It is subject to the PUCs complete authority over its operations.”
Haynes and Boone partner Ben Mesches, arguing on behalf of Panda Power, described ERCOTs position as “ambitious and transformational but it also defies the legislatures policy choices and purest text.”
“The legislature knows how to confer immunity, it knows how to confer government entity status and it knows how to grant exclusive jurisdiction,” Mesches argued. “But here, the legislature did none of those things.”
At the end of the hour and 20-minute arguments, the justices clearly understood the full stakes of the decision before them.
“Are you arguing that ERCOT is too big to fail?” Justice Boyd asked.
“In essence, yes,” Jefferson answered.