The Supreme Court of Texas agreed late Friday that it will hear the appeals this fall of two cases brought by electric power companies against the Electric Reliability Council of Texas that involved billions of dollars individually and could impact tens of billions of dollars at stake in thousands of lawsuits related to Winter Storm Uri.
The two cases, which are unrelated to each other, are likely to be argued jointly because the same questions are at the heart of both matters: Is ERCOT a division of state government and is it immune from civil lawsuits?
The first dispute is a six-year, multibillion-dollar legal battle brought by Dallas-based Panda Power that has nothing to do with Winter Storm Uri.
Panda claims ERCOT knowingly produced false market data in 2011 and 2012 that led it to invest $2.2 billion to build three new power plants – operations that did not generate the revenues that ERCOT predicted. Panda claims that ERCOT committed fraud, negligent misrepresentation and breach of fiduciary duty and demands hundreds of millions of dollars in damages.
The second case pits San Antonio’s CPS Energy against ERCOT and is directly tied to Winter Storm Uri. CPS alleges that after the Texas Public Utility Commission ordered ERCOT to set electricity prices at the highest permissible rate – $9,000 per megawatt hour – in order to conserve scarce power during the storm, ERCOT improperly maintained that scarcity pricing after the power crisis had passed, resulting in billions of dollars in overcharges statewide.
In both cases, ERCOT argues that it is a division of state government and thus has immunity from lawsuits related to his official actions.
In the CPS case, the San Antonio Court of Appeals dismissed the energy company’s lawsuit, stating that CPS should have taken its claims through an administrative process with the PUC instead of going to court first. The justices on the Fourth Court of Appeals did not address ERCOT’s immunity argument.
“We note that nothing in our opinion and judgment prohibits CPS from re-filing its claims against ERCOT after it has exhausted its administrative remedies before the PUC,” wrote Justice Beth Watkins last December.
CPS appealed to the Texas Supreme Court.
By contrast, the Dallas Court of Appeals in the Panda litigation tackled ERCOT’s claim of immunity head-on and rejected it.
“To date, the supreme court has not extended sovereign immunity to a purely private entity neither chartered nor created by the state, and this court will not create new precedent by extending sovereign immunity to ERCOT,” Justice Erin Nowell wrote in a 50-page opinion in February. “ERCOT is not entitled to sovereign immunity and the legislature did not grant exclusive jurisdiction over Panda’s claims to the PUC. To the extent we previously held otherwise, that holding is in error.”
“Although ERCOT argues it has the power to make binding law, which it calls the ‘quintessential sovereign power,’ the applicable statutes do not support this argument,” the Fifth Court of Appeals said in a 12-1 decision.
ERCOT asked the state supreme court to reverse.
ERCOT’s legal troubles go far beyond the Panda and CPS cases. There are hundreds of personal injury, wrongful death and property damage lawsuits pending in Houston seeking tens of billions of dollars from ERCOT for its mishandling of Winter Storm Uri, when millions of Texans were without electricity for days, scores of people died from apparent hypothermia and power rates skyrocketed to hundreds of times the normal rate.
ERCOT lawyers see the CPS and Panda litigations as a way of escaping all those lawsuits by convincing the state justices to declare that ERCOT is a state agency immune from civil lawsuits and that any complaints against it must be handled by the Texas PUC.
“ERCOT is an arm of the state entitled to immunity to protect against lawsuits that would undermine its mission to protect the electric grid and shift its assets to a private market participant that has no obligation to guard the public interest,” Wallace Jefferson, a partner at Alexander Dubose & Jefferson, wrote in a 28-page brief on behalf of ERCOT.
“The en banc opinion [of the Dallas appeals court] divests Texas of its unique, plenary jurisdiction over the state’s electric grid, subjecting the grid’s reliability to the whims of private litigants,” wrote Jefferson, who is the former chief justice of the Texas Supreme Court. “The court’s profound error on immunity must not stand.”
Lawyers for Panda obviously disagreed.
In a 20-page response filed in June, Ben Mesches, Leslie Thorne and Werner Powers – all partners at Haynes and Boone – argue that the Texas Supreme Court should let the lower court’s opinion in the Panda case stand.
The lawyers for Panda argue that ERCOT is “not an arm of the state” but instead is a “private membership corporation regulated by the PUC.”
“The ultimate question here is whether ERCOT had a duty not to lie in meetings and proprietary reports about electricity supply and demand,” lawyers for Panda wrote. “Whatever the outcome in those other cases, Panda’s classically common-law fraud claims should be decided in the courts.
“Allowing ERCOT to escape accountability through the judicial backdoor would undermine these policy choices, impermissibly shift the risk of loss to injured parties, and shake the foundations of the competitive electricity market,” the Panda lawyers argued. “The Dallas court properly rejected ERCOT’s arguments; this Court need not say so again.”