Allyson Ho (left) of Gibson Dunn & Crutcher addresses a panel at the Third Court of Appeals in Austin
The Texas Public Utility Commission’s February 2021 emergency rules allowing an increase in electric rates to $9,000 per megawatt hour in response to Winter Storm Uri were “invalid and ineffective” and “wreaked havoc” on the state’s power system, lawyers representing several large energy companies told a Texas appeals court Wednesday.
Lawyers for Dallas-based Luminant Energy asked a three-judge panel of the Texas Third Court of Appeals in Austin to declare that the PUC illegally adopted two pricing rules during the historic storm that allowed the Electric Reliability Council of Texas to increase the emergency price of electricity 650 percent for five days.
In response, the PUC argued that the energy companies suing the agency are simply upset at losing money during Winter Storm Uri and are asking the judges to “second-guess” decisions made by the PUC and ERCOT under extreme weather conditions.
Legal experts say the PUC decision to set rates at $9,000 for the five days during Winter Storm Uri forced some electric providers to pay billions of dollars to provide power to their residential and commercial customers, while other electric companies profited by selling power at those high rates.
The decision by the Austin Court of Appeals will dramatically impact the efforts by more than a dozen electric providers challenging their ERCOT invoices.
Winter Storm Uri hit Texas Feb. 14, 2021, bringing with it snow, freezing rain and sub-zero temperatures. While electric went out in large portions of the state, especially in the Houston area, power demand surged in other areas, such as Dallas. At the same time, many electric generators went off-line, and natural gas providers also were unable to supply product to electric generators.
The PUC, at a six-minute meeting Feb. 15, decided to address the gap between supply and demand by issuing an emergency “rule” that reset the maximum price at $9,000 per megawatt hour – up from $1,200. It made the $9,000 price retroactive to Feb. 14. The next day, Feb. 16, the PUC met again and rescinded the retroactive part of its order.
The high-stakes litigation pits the energy companies against each other. For example, Houston-based Pattern Energy, Exelon Generation and Constellation NewEnergy are supporting Luminant in the litigation. All are fighting multibillion-dollar charges as a result of the $9,000 price.
Houston-based Calpine Corporation, Talen Energy and TexGen Power support the PUC position. Spring, Texas-based DGP2 and Distributed Solutions argue that the first PUC rule is valid but the second-day rule rescinding retroactivity was illegal.
Allyson Ho, a lawyer for Luminant and partner at Gibson, Dunn & Crutcher, told the Austin appellate judges that both emergency pricing rules were invalid for multiple reasons, including the fact that the PUC never filed the rule change with the Secretary of State’s office.
“This is a case where the agency disregarded legal procedures. It did not follow the law,” Ho argued Wednesday. “It is not too much to ask the PUC to follow the rules, follow the law.”
“The PUC has staked out extreme and unprecedented positions in this case,” she told the judges.
Texas Assistant Solicitor General Lisa Bennett, who represents the PUC, told the judges that the PUC didn’t violate Texas law because the agency’s actions were merely “a direction to ERCOT, not rulemaking.” She argued that the law “provides wide discretion” for the PUC to make such decisions.
The PUC’s actions were “taken during an extreme emergency” and because there was a flaw in the system, she said.
“We were at negative reserves, but the price was not going up,” Bennett told the judges.
Baker Botts appellate partner Macey Reasoner Stokes, who represents Calpine and Talen, contended that companies like Luminant are using the litigation to “improperly shift resulting market losses to other parties.”
“When the emergency passed, however, market participants assessed the financial outcomes of the complex actions they and others had taken in the market during the storm, and some suffered staggering losses,” Reasoner Stokes argued in written briefs filed with the appellate court. “In hindsight, some market participants now blame the PUC for their losses and argue that the Orders were illegal all along.”
Dallas trial lawyer Chrysta Castañeda, who represents DGSP2, told the judges Wednesday that the PUC’s first rule was valid and that “the price of electricity was properly set at $9,000.”
Castañeda argued that the PUC’s second-day decision to repeal the retroactivity of the price change to $9,000 “gave zero reason – emergency or otherwise – to retract some of its rulemaking.” As a result, it should be declared invalid. The appellate judges who heard the oral argument Wednesday were Third Court of Appeals Chief Justice Darlene Byrne, Justice Melissa Goodwin and Justice Edward Smith.