An attorney for the Public Utility Commission of Texas told the state’s supreme court during oral arguments Tuesday that if the Third Court of Appeals in Austin was correct in holding PUC’s adoption of a new load shed price-setting protocol was invalid, the detrimental ripple effect will be vast.
At issue in the case that pits PUC against RWE Renewables Americas is whether the PUC ran afoul of the 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/MWh maximum 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.”
“The Legislature could have exempted the Commission from the APA requirements, at least with respect to the adoption or approval of ERCOT protocols, but it did not,” the three-justice panel wrote. “And that is the Legislature’s call, not that of this court. The job of the courts is to ensure that the law — as passed by the Legislature — is followed when agencies adopt rules.”
The Third Court of Appeals also rejected the PUC’s argument that NPRR 1081 wasn’t a “competition rule,” and determined that adoption of the rule exceeded the Commission’s statutory authority and was therefore invalid.
“We conclude that NPRR 1081 falls within the APA’s definition of ‘rule’ and, concomitantly, within the term ‘competition rule’ as used in Section 39.001(e) of the Utilities Code,” the panel wrote. “Accordingly, we hold that NPRR 1081 can be challenged through the direct-appeal process provided by that Code.”
Assistant Solicitor General Kyle D. Highful told the court that if the Third Court of Appeals’ ruling stands, after ERCOT has gone through its own review and voting process for new protocols, then PUC “on the backend is going to have to go through costly and duplicative APA rulemaking if the amendment itself is a rule.”
“The second consequence, if the Court of Appeals and respondents are correct, is that now, every time the protocols are revised — and this happens frequently — it’s going to mean a direct appeal to the Fifteenth Court [of Appeals] if someone isn’t happy with it,” Highful said. “It’s easy to see how the Fifteenth Court’s docket is going to become flooded with direct appeals under PURA from every ERCOT protocol revision.”
The third negative outcome, Highful told the justices, would be that all protocol changes that ERCOT and the Commission have adopted in the three years since Uri would be presumptively invalid as well.
“And the reason for that is that all of the Commission orders that have approved the protocol changes are much like this one — they’re not APA rulemakings,” he said. “ERCOT says in its amicus brief that’s more than 150 revisions. My understanding from the Commission is that that number is now well above 200 and it continues to grow.”
“We’re talking about hundreds maybe thousands of pages of binding market rules and the effect on the Texas energy market of suddenly having all of those protocols presumptively invalid is difficult to imagine.”
Kurt Kuhn of Kuhn Hobbs, who represents RWE, said part of the issue here is that PUC hasn’t changed its procedures as it was required to do after Gov. Greg Abbott — in the wake of Uri — signed S.B. 2 into law in June 2021. The law requires the implementation of a formal process for adopting new protocols or revising existing protocols and separately mandates that ERCOT protocols and rules must be approved by PUC before taking effect.
“They have basically refused to accept that that changed the way this works,” he said. “The Legislature in Senate Bill 2 told them they needed to adopt a new procedure and they haven’t done it.
Prior to S.B. 2 becoming law, Kuhn said the PUC didn’t approve rules, they just went into effect, and to challenge the rule parties would file a contested case with the PUC.
“The problem here is the PUC has already acted, the PUC has already adopted this rule when it approved it,” he said. “So, the question becomes — and the Sunset Commission noted that this was a confusing issue because they refuse to update their process — what do we do once the PUC has already acted?”
“What they’re saying is we’re required to go back to the PUC and do a contested case about its own decision,” he said. “That’s nowhere in the rules.”
The case did receive some amicus attention. Wallace B. Jefferson, the former Texas Supreme Court chief justice and a current partner at Alexander Dubose & Jefferson, filed a brief in support of the PUC on behalf of ERCOT.
“As the PUC explains, the simplest resolution of this case would be to dismiss RWE’s direct appeal for want of jurisdiction,” ERCOT argued in the brief. “The court of appeals only has direct-appeal jurisdiction over a ‘competition rule[] adopted by the commission.’”
ERCOT argued the Texas Supreme Court rejected an argument identical to the one RWE makes in this case in its 2023 ruling in CPS Energy v. ERCOT where the court held that ERCOT itself adopts rules subject to approval by PUC.
“Because ERCOT, rather than the PUC, ‘adopted’ NPRR 1081, RWE’s challenge should be dismissed,” ERCOT told the court.
Macey Reasoner Stokes of Baker Botts filed an amicus brief on behalf of Calpine Energy, urging the court not to allow RWE to use this appeal to “relitigate the factually and procedurally distinct Luminant case pending before this court.” In Luminant — which Stokes argued to the high court in January on behalf of Calpine and Talen Energy — the issue is the propriety of the PUC’s emergency February 2021 actions addressing the immediate impact of Winter Storm Uri, while here RWE is challenging the PUC’s approval months later of Nodal Protocol Revision Request 1081, Calpine said in its amicus brief.
“The two actions are entirely separate, and the relief sought by each has profoundly different implications for the market. For example, the Commission’s approval of NPRR 1081 occurred under a new statutory mandate that did not even exist when the February 2021 Orders were issued,” Calpine told the court. “… The Commission approved NPRR 1081 pursuant to a different statutory framework, subject to distinct procedural requirements, and following a robust non-emergency, ERCOT-administered process that included the participation of market participants, including respondents.”
“The Third Court’s cut-and-paste onto this case of its erroneous Luminant holding that the PUC lacks statutory authority and Respondents’ attempt to relitigate the factual record and their own legal positions taken in the Luminant case, provide no basis for conflating these two distinct cases.”
PUC is also represented by Lanora C. Pettit and Bill Davis of the Texas attorney general’s office.
RWE is also represented by Lisa Hobbs of Kuhn Hobbs and Michael J. Jewell of Jewell & Associates.
The case number is 23-0555.