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Tuesday, June 25, 2024 | Back issues
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At Texas high court, energy companies fight colossal bills from winter storm Uri

A Dallas-based power company that spent almost $1 billion buying electricity for its Texas retail providers during a horrid winter storm is trying to recoup some of those fees.

AUSTIN, Texas (CN) — Electric companies who claim a Texas agency’s errant energy pricing amid a tragic Arctic cold front cost them billions of dollars asked the state supreme court on Tuesday to affirm a ruling that the agency exceeded its authority.

Uri brought widespread misery to the Lone Star State in February 2021. It left more than 200 people dead from hypothermia and other health complications and caused an estimated $295 billion in damage, according to the University of Houston.  

But Mother Nature was not solely responsible for the catastrophe; much of it was man-made.

Thanks to power plant operators’ and natural gas suppliers’ lack of preparation for the storm’s frigid temperatures, plants went offline as demand soared with millions of Texans cranking up their home heaters.

To prevent a grid failure that could have caused a complete blackout across the state, the Electric Reliability Council of Texas, the state’s grid operator, implemented rolling blackouts in the early morning of Feb. 15, 2021.

Later that day, the Public Utility Commission ordered ERCOT to set the wholesale price of electricity at the maximum $9,000 per kilowatt hour.

The commission decided ERCOT's pricing algorithm had a glitch because the wholesale price at the time was averaging $2,400 per kWh, but during blackouts, or “load shed,” the algorithm was supposed to be setting it at the max price.

Prices stayed at the $9,000 cap for nearly four days until Feb. 19, though ERCOT discontinued forced blackouts on Feb. 17.

Though more than two-thirds of Texas households lost power at some point during the storm, some residents received bills of more than $16,000 in the aftermath since they had signed up for plans at wholesale rates.

The financial pain was worse for power providers. Facing hundreds of millions of dollars in bills from ERCOT, several retail energy companies and cooperatives declared bankruptcy.

Luminant, a Dallas-based subsidiary of Vistra Corp. that both sells electricity and buys it for its affiliated retail providers, says buying power at the $9,000 price cost it almost $1 billion.

Seeking to claw back some of that outlay, Luminant challenged the utility commission in a direct appeal filed in March 2021 with the Third Court of Appeals in Austin.

Two years later, a panel of the intermediate appellate court sided with Luminant.

It found the commission’s order for ERCOT to set the maximum electricity price had exceeded the commission’s authority by “eliminating competition entirely,” in disregard of the language in bills the Legislature passed in 1999 deregulating the state’s electricity market that required wholesale and retail rates to be set by competition instead of regulation.

The commission appealed to the all-Republican Texas Supreme Court and six of its nine judges heard arguments Tuesday.

Representing the commission, Lanora Pettit, a Texas deputy solicitor general, argued its price mandate was not an unlawful competition rule, rather it was telling ERCOT to follow rules already in place regarding pricing during blackouts.

“The understanding of everybody in the market was that ($9,000 per kWh) was the price when load was being lost that would be charged,” Pettit explained. “And what happened here was not an amendment to that rule but instead a direction to ERCOT that your algorithm is not working the way it’s supposed to, so please go fix it and get in line with the rules we have already established.”

Luminant claims the price hike did nothing to incentivize production because all the plants that had not shuttered due to the weather were running and there was no ability to generate more supply.

Justice Jane Bland asked Pettit if it matters whether the commission’s order was effective.

“Not at all, your honor,” Pettit replied. She said because the case is a rule challenge, the record is limited to information that was available at the time when the commission believed it was making the right decision.

Allyson Ho, Luminant’s attorney, laid out her argument in simple terms.

“If the rule of law means anything, it means that administrative agencies have to follow the law just like ordinary citizens do, even, or perhaps especially, in times of emergency,” said Ho, a partner in the Dallas office of Gibson Dunn.

“Here the Legislature expressly banned exactly what the agency did: set wholesale pricing by regulatory fiat,” she added.

Justice Jimmy Blacklock questioned Ho about the implications of Luminant’s position.

He said imagine that the commission was right they had to hike prices to the cap to avoid the worst catastrophe of the whole Texas grid collapsing.

“Is it really your position that they are tied to the mast of competition in a way that prevents them from taking that action, if we are in a world where it actually is the case that they just have to commander the market for a while to make sure we’re not in the Stone Ages for a few weeks?” he asked.

Ho did not waver: “The Legislature has made that call."

And the Legislature, Ho continued, has said there is one thing you cannot do “and that is set, regulate wholesale electricity prices.”

The Texas Supreme Court’s justices, two of whom have recused themselves from the case, did not say when they would rule on the appeal.

Luminant and the public utility commission are not the only parties involved in the litigation. Eleven other electricity companies intervened in the case backing Luminant. And three power plant operators, including Calpine Corp. and Talen Energy Corp., intervened in support of the commission.

Urging the high court to reverse the Third Court of Appeals' ruling that the commission erred, Calpine's and Talen's attorney, Macey Reasoner Stokes of the Baker Botts Houston office, gave five minutes of arguments in Tuesday's hearing

Should the Texas Supreme Court rule against the commission, the agency might have to order suppliers who raked in profits selling power at the $9,000 rate to issue refunds to Luminant and other buyers. The payouts could total billions of dollars.

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Categories / Appeals, Business, Energy

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