A sharply divided Texas Supreme Court ruled Friday that the Electric Reliability Council of Texas is a government agency and is entitled to sovereign immunity from civil lawsuits.
The decision by the state’s highest court, which four dissenting justices said “undermines public trust,” almost certainly means that ERCOT will be dismissed as a defendant in thousands of Winter Storm Uri-related wrongful death, personal injury and product liability lawsuits pending in Harris County courts, according to multiple legal experts.
In a five-to-four ruling, the justices found that ERCOT, a nonprofit private corporation governed by the Texas Public Utility Commission “performs a ‘uniquely governmental’ function as part of a ‘larger governmental system’, it is an organ of government.”
“ERCOT is not a government contractor; it is an ‘essential organization’ certified by the [Public Utility Commission] pursuant to statute, and its argument for immunity is as an arm of the state, not derivative of the state,” Chief Justice Nathan Hecht wrote in his 40-page opinion.
“The fact that ERCOT is organized as a membership-based nonprofit corporation does not make it any less an arm of the state,” Chief Justice Hecht penned. “An entity’s organizational form is not dispositive. While corporations do not typically enjoy sovereign immunity, ERCOT is not a typical corporation.”
While the state supreme court’s decision protects ERCOT from civil litigation for its role in Winter Storm Uri, the unprecedented February 2021 storm that paralyzed most of Texas for four days and led to hundreds of deaths, lawyers said Friday that the lawsuits against the individual energy companies will move forward.
In its opinion, the Texas justices said that any damage claims against ERCOT must be brought first as an administrative proceeding before the PUC, the very state agency that governs ERCOT.
The four dissenting justices decried the ruling, saying that granting ERCOT immunity from civil lawsuits “undermines public trust” and called on state legislators to fix the majority’s “erroneous decision.”
Justices Jeffrey Boyd and John Devine, in a 53-page dissenting opinion, agreed that ERCOT is an agency created and governed by the state and that the state PUC has original jurisdiction over disputes with ERCOT. But he wrote that the Texas legislators never granted ERCOT sovereign immunity.
“Texas law has not vested the private corporation ERCOT with the nature of an arm of the state, we respectfully disagree that sovereign immunity should broadly prohibit courts from exercising jurisdiction over claims against it,” wrote Justice Boyd and Justice Devine, who was joined by two other justices. “Until today, however, this court had never extended sovereign immunity to a purely private entity — one neither created nor chartered by the government — even when that entity performs some governmental functions.”
“The public expects and trusts that those injured can claim the protection of the laws and that those responsible — to the extent responsibility exists — will be held accountable: the government through the political process and at the ballot box and private entities in court,” Justice Boyd and Justice Devine wrote. “But by granting sovereign immunity to a purely private entity that has not been designated as part of the government and without requiring a demonstration of the government’s actual control over the complained-of conduct, the court undermines this public trust.”
The Texas Supreme Court’s decision involves two generally unrelated cases.
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 claimed 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 alleged 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 argued 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.
By contrast, the Dallas Court of Appeals in the Panda litigation tackled ERCOT’s claim of immunity head-on and rejected it.
The Texas Supreme Court decision Friday reverses the Dallas Court of Appeals and upholds the San Antonio Court of Appeals.
Justices Boyd and Devine used their dissent to ask the Texas Legislature to “correct the court’s error” by enacting “a rule of construction that it does not intend to grant private entities the ‘nature, purposes, and powers’ of an arm of the state for the purposes of sovereign immunity unless it explicitly designates the entity as part of the government.”
“The Legislature could also waive some or all of ERCOT’s newfound immunity,” they wrote. “In this way, the Legislature could begin restoring the public’s trust following this court’s erroneous extension of sovereign immunity to a purely private corporation.”
The case numbers are 22-0056 and 22-0196.