Legal efforts by some of the largest energy companies in Texas to force the Texas Public Utility Commission to reprice the record-high electricity rates it charged during Winter Storm Uri three years ago were flatly rejected Friday by a unanimous Texas Supreme Court.
The state’s highest court ruled that the PUC did not exceed its legal authority in February 2021 when it ignored market competition to set electric rates at $9,000 per megawatt-hour because the Texas grid faced an emergency crisis and possible collapse “that would have plunged the state into darkness for weeks, maybe months.”
The unanimous 30-page opinion reverses the decision of the Austin court of appeals in 2023 that the PUC overstepped its legal authority by ignoring integrated market competitive procedures and instead manually set electric rates during the four days of Winter Storm Uri.
The Texas justices’ decision also appears to end a challenge by Dallas-based Luminant and other companies to force the PUC to reset the electric rates they were forced to pay during Winter Storm Uri, which would provide them a refund of possibly billions of dollars. It would also require dozens of companies that sold power under the inflated fix prices to pay back some of those revenues. Some energy experts have described it as the single largest transfer of wealth in Texas history.
In its legal challenge, Luminant lawyers, led by Gibson, Dunn & Crutcher’s Allyson Ho, argued that the PUC exceeded its statutory authority by manually overriding the market competition requirements for the power grid established by the Texas Legislature and that the PUC violated the Texas Administrative Procedure Act by not properly filing the rate changes with secretary of state’s office.
But the Texas justices rejected both of those arguments.
Chief Justice Nathan Hecht wrote that the Texas Utility Code “expressly directs ERCOT to “‘ensure the reliability and adequacy of the regional electrical network’ and gives the commission ‘complete authority’ to ensure that ERCOT adequately performs that duty, which includes rulemaking ‘relating to the reliability of the regional electrical network.’
“Section 39.001 acknowledges that the goal of prices set by competition may, in some circumstances, have to yield,” Chief Justice Hecht wrote. “Deciding when those circumstances are present — and how to respond — is the commission’s job, not the judiciary’s.”
“The [PUC] has the expertise to manage the electric utility industry; the courts do not,” the chief justice wrote. “The court of appeals thus strayed from its lane by inquiring whether the orders could have used ‘competitive rather than regulatory methods’ to any greater extent than they did. And for the same reason, we must decline Luminant’s invitation to second-guess the orders’ necessity and whether it was the price hike they enacted or the commission’s earlier load-shed directives that truly saved the grid from collapse.”
Similarly, the Texas justices ruled that the PUC did not violate the rulemaking procedures under the APA.
“Luminant complains that the commission did not quote the exact statutory language under a heading titled preamble,” Chief Justice Hecht wrote. “But only substantial compliance is required. Elsewhere, the APA states that an ‘agency shall take appropriate measures to make emergency rules known to persons who may be affected by them.’ The commission did that by immediately posting the orders on its website.”
The PUC did not win on all of its arguments. The state Supreme Court rejected the PUC’s claim that Luminant had no standing or legal right to seek judicial review of the PUC’s orders.
“We are likewise unpersuaded by the commission’s argument that Luminant’s appeal was moot before it even began,” Chief Justice Hecht wrote. “The commission argues that the orders expired on their own terms when the market returned to normal operations on February 19, 2021. But Luminant suffered financial loss as a result of the orders. Following the commission’s logic would mean that short-term rules could never be challenged. That is not the law.”
The opinion was 7-0. Justices Rebeca Huddle and Evan Young recused themselves from the case.
The case is Public Utility Commission v. Luminant, No. 23-0231.
In a separate decision, the Texas Supreme Court unanimous rejected arguments by RWE Renewables Americas that the PUC ran afoul of the state’s Administrative Procedure Act in July 2021 when it approved an Electric Reliability Council of Texas protocol, called the Nodal Protocol Revision Request 1081. NPRR 1081 requires setting electricity prices at the $9,000 per megawatt hour anytime an inadequate electricity supply cuts off consumers from power in an emergency. It was enacted after PUC directed ERCOT during 2021’s Winter Storm Uri to temporarily set electricity prices at the statutory maximum of $9,000/MWh.
This lawsuit came to the high court by way of Austin, after RWE in December 2021 filed a direct appeal with the Third Court of Appeals arguing the rule “that alters, amends, and departs from existing competition rules governing the pricing of electricity and the use of the scarcity pricing mechanism in the ERCOT competitive market” had been adopted without allowing for public notice and comment as the APA requires.
In June 2023 the Third Court of Appeals agreed with RWE, writing in a 25-page opinion “the Commission complied with few, if any, of the requirements of APA Sections 2001.023-033.”
But the Texas Supreme Court disagreed.
In a 17-page decision written by Justice Debra Lehrmann, the state’s high court ruled that “the PUC’s approval order is not a ‘competition rule adopted by the commission’ subject to the judicial-review process for PUC rules.”
“PURA envisions a separate process for ERCOT-adopted protocols, and the statutory requirement that the PUC approve those adopted protocols does not transform PUC approval orders into PUC rules eligible for direct review by a court of appeals,” Justice Lehrmann wrote. “The Third Court of Appeals therefore lacked jurisdiction over this proceeding.”
The case number is 23-0555.