Six Texas Supreme Court justices peppered three lawyers with about two-dozen questions during an hour of oral argument Tuesday morning in an effort to determine whether the state’s Public Utility Commission was within its power to manually set electric rates at $9,000 per megawatt-hour during the four days of Winter Storm Uri in 2021 or if a massive, multibillion-dollar repricing needs to take place.
“The question before this court is a narrow, legal one: Does the plain text of PURA authorize the PUC to order ERCOT to restore competitive scarcity pricing signals to the electricity market and ensure the reliability of the electric grid?” Macey Reasoner Stokes, an appellate partner at Baker Botts in Houston who represents Calpine and Talen Energy, told the state’s highest court. “We submit the answer is a resounding yes.”
Stokes argued that the Austin court of appeals was wrong to rule last March that the Texas Public Utility Commission (PUC) violated the state’s Public Utility Regulatory Act (PURA) when it authorized the Electric Reliability Council of Texas (ERCOT) to increase electric rates to their maximum legal level.
Lanora Pettit, who is the principal deputy solicitor general in the Texas attorney general’s office, told the justices that “the easiest way for this court to resolve this case” is to decide that the PUC’s orders were “directives, not rules.” She argued that the automatic pricing system established by ERCOT to avoid a systemwide shutdown failed and required action and that the PUC simply exercised its authority over ERCOT “to bring prices back in line with the rules … and what a competitive market required.”
The PUC “had four to six minutes” to make its decision “before we faced the dark ages for months,” Pettit said.
But Allyson Ho, a partner at Gibson, Dunn & Crutcher in Dallas who represents Luminant, asked the justices to uphold the lower court opinion because the PUC should be required to follow the law just like every other Texas citizen.
“Their argument is that they had to kill competition to save competition,” Ho argued. “There is nothing competitive about setting prices.”
The justices on the Texas Supreme Court were active in their questions to the lawyers arguing the case.
Justice Jane Bland: “The PUC and Calpine argue there were two goals the legislature was aiming for in delegating authority to the PUC — protection of the grid and the competitive market. The compete market is goal is to the extent feasible. Why does that language not make the competitive market goal subordinate to the goal of integrity of the grid?”
Ho responded that the justices did not need do not need to decide that balance.
“In this case, the agency did the one thing that the legislature expressly said it could not do — it set prices,” Ho argued to the court.
Justice Jimmy Blacklock: “Imagine a world where they [the PUC commissioners] are right, that in order to avoid some kind of catastrophe, they need to do something like this and they need to do it immediately. Is it really your position that they are tied to the mast of competition in a way that prevents them from taking action to commandeer the market for a while to make sure that we are not in the stone ages for a few weeks?”
“ERCOT was already into its highest alert,” Ho responded. “All generators who could run had to run. That was part of the order and was already in place.”
When Winter Storm Uri hit on Feb. 14, 2021, it brought record-setting, near-zero-degree temperatures and freezing rain to Texas. Power outages occurred throughout the state that left more than nine million people without electricity. About 130 deaths are attributed to Winter Storm Uri.
In response, the PUC, in a six-minute emergency meeting, voted to increase the universal rate that ERCOT would require electric suppliers to pay for power to $9,000 per megawatt-hour — about a 30,000 percent increase over normal rates. The PUC order kept the $9,000 per megawatt-hour rate in effect until Feb. 19.
The result was that those buying electricity were charged exorbitant amounts and those selling received a cash bonanza.
In the words of CenterPoint Executive Vice President Jason Ryan, it was the largest single transfer of wealth in Texas history.
In March, Luminant and other energy companies filed a complaint with the Texas Court of Appeals for the Third District in Austin, challenging the PUC’s authority to set electric rates manually and seeking price adjustments.
Chief Justice Nathan Hecht: “The PUC is authorized to order outages. Why is that not anticompetitive?”
“The competitive market was working,” Ho answered. “The failure in this case was not a failure of the market. It was a failure of the agency.”
Only six of the nine Texas Supreme Court justices participated in the hearing. Justice John Devine is participating in the case but was unable to be present for oral arguments. Justices Rebeca Huddle and Evan Young recused themselves from the case.
The case is Public Utility Commission v. Luminant, No. 23-0231.