In yet another example of the massive complex litigation stemming from 2021’s Winter Storm Uri, the U.S. Court of Appeals for the Fifth Circuit is being asked to balance the usually unparalleled authority of federal bankruptcy judges in restructuring cases against the potential sovereignty of Texas energy regulators to set rates.
Canadian energy retailer Just Energy and the Electric Reliability Council of Texas squared off Tuesday before a three-judge panel of the Fifth Circuit in a dispute over whether a Houston bankruptcy judge can order ERCOT to repay Just Energy up to $335 million from payments made following the February 2021 storm.
Lawyers for ERCOT appealed to the Fifth Circuit, claiming that Chief Bankruptcy Judge David Jones of the Southern District of Texas “abused his discretion” by not immediately dismissing claims by Just Energy to lower the rate ERCOT charged the energy retailer.
ERCOT lawyers, led by Jamil Alibhai, a partner at Munsch Hardt Kopf & Harr, argue that ERCOT has sovereign immunity as a state agency in Texas and cannot be sued in federal court. They also contend that the judicially created “filed rate doctrine” precludes federal legal claims challenging power rates set by regulators.
Just Energy’s lawyers, led by Quinn Emmanuel partner James Tecce, counters that ERCOT is ignoring the fact that those legal principles do not apply in bankruptcy proceedings, especially those in Chapter 15 cases involving foreign companies such as Just Energy.
“We were forced into bankruptcy, and in bankruptcy we get certain rights,” Tecce told the three-judge panel, which consisted of Judges Leslie H. Southwick, James E. Graves and Kurt D. Engelhardt.
Just Energy, which buys electricity and natural gas from large energy suppliers and resells to residential and commercial customers in Texas, filed for bankruptcy protection in Canada in March 2021 after severe winter weather crippled Texas for four days in February 2021. Known as Winter Storm Uri, millions of homes and businesses were without power and the price of energy skyrocketed.
With approval from the Canadian bankruptcy court, Just Energy filed an adversarial complaint under Chapter 15 in bankruptcy court in Houston seeking to claw back up to $335 million it paid to ERCOT when ERCOT raised rates to $9,000 per megawatt hour.
Lawyers for ERCOT told the Fifth Circuit that Just Energy’s adversarial actions “must be dismissed” under the 11th Amendment.
“All rate challenges must proceed before the agency and in the designated judicial-review proceedings to ensure consistency for all market participants,” Alibhai told the Fifth Circuit in written briefs. “Appellees attempt to bypass that process by asking the bankruptcy court to declare these approved rates unlawful, unjust or excessive. In doing so, Appellees impermissibly seek to modify a filed rate and achieve a discriminatory rate that benefits only them.”
Alibhai said ERCOT “has not waived its immunity nor has its immunity been abrogated.” He said Just Energy’s pursuit of “monetary relief from ERCOT under foreign law in an ancillary Chapter 15 proceeding is particularly offensive to state sovereignty.”
“Once again, challenges to [Public Utility Commission of Texas] actions must proceed, if at all, in state court, where immunity is narrowly waived under state law,” Alibhai wrote. “Texas has a unique interest in regulating its independent electricity grid and market, and that comprehensive scheme should not be disrupted by one-off proceedings in bankruptcy court.”
Tecce responded that the U.S. Supreme Court has held that “states waived their sovereign immunity when the Bankruptcy Clause was ratified with respect to the types of claims Just Energy brings.”
“Chapter 15 provides a broad reservoir of power to facilitate foreign insolvency proceedings like Just Energy’s pending in Canada,” Just Energy responded in briefs to the Fifth Circuit. “There is ample authority to support the bankruptcy court’s ultimate conclusion that Just Energy’s lawsuit against ERCOT should proceed.”
Tecce wrote that Just Energy and debtors “have rights to bring core claims in the same forum supervising their restructuring — especially when a state court is incapable of affording relief.”
“ERCOT and the PUCT portend incorrectly that such an outcome will give Just Energy preference over other market participants and open the flood gates to federal-court litigation. Not true,” Just Energy said in its brief. “Any such decision will apply only to a narrow subset of plaintiffs that find themselves in bankruptcy.”
Other lawyers representing ERCOT in the litigation include Munch Hardt partner Kevin Lippman and Alexander Dubose & Jefferson partners Wallace Jefferson, Nicholas Bacarisse and Rachel Ekery.
There are two co-appellants in the litigation: NRG Energy and Calpine Energy. Shearman & Sterling partners C. Luckey McDowell and Ian E. Roberts represent NRG Energy. Baker Botts partners Aaron Streett, George Fibbe and J. Mark Little represent Calpine Energy,
Quinn Emanuel New York partners Lindsay Weber and Szymon Barnas are also representing Just Energy.
The case is In the Matter of Just Energy Group, Inc. No. 22-20424.