AUSTIN, Texas (CN) — The question of whether the Electric Reliability Council of Texas has sovereign immunity from lawsuits has been hanging over the electricity grid manager since before the Winter Storm Uri disaster of February 2021 that exposed the fragility of the state’s power supply.
Hundreds of Texans died from hypothermia and medical complications as some households went four days without power during freezing temperatures after ERCOT implemented blackouts due to a shortage of electricity with power plants going offline because some operators and natural gas companies that supply gas-fired plants had failed to winterize their equipment.
Economists say ERCOT’s underestimation of the state’s peak demand for a winter storm that brought frigid temperatures in the week leading up to Christmas Day points to the fundamental problem: Texas lacks sufficient power in all circumstances for a populace growing by the day, adding to a population that increased by more than 3.9 million from 2010 to 2020, the most of any state, according to U.S. Census data.
The Texas Supreme Court heard arguments Monday in a case arising from ERCOT’s grid management during Winter Storm Uri, and another dating to 2016 involving a power company that claims ERCOT’s misrepresentations in 2011 and 2012 about a looming power shortage led it to spend $2.2 billion building three power plants.
Panda Power says it was forced to sell power for a fraction of the price it anticipated due to ERCOT’s distortions and one of its plants went bankrupt.
Both cases turn on the same question: Is ERCOT, which is classified as a private nonprofit entity, entitled to sovereign immunity because it performs a government function of managing the state’s grid?
The implications go beyond these two cases into county courthouses throughout the state, with ERCOT facing hundreds of Uri wrongful death and negligence lawsuits.
Aside from immunity, ERCOT argues any grievances against it should first be adjudicated in administrative hearings before the Texas Public Utility Commission, which oversees its operations.
Governor Greg Abbott has sided with ERCOT. “To ensure the reliability of Texas’s electric grid, the Legislature has conferred authority upon the Public Utility Commission and put ERCOT at that agency’s complete disposal,” he wrote in a Jan. 6 amicus brief.
“But ERCOT cannot serve this important governmental function if it is subject to competing commands and retrospective money judgments from district judges scattered across our 254 counties,” added the Republican governor, a former Texas Supreme Court justice.
San Antonio’s municipal electric utility, CPS Energy, sued ERCOT in March 2021 on claims of breach of contract, negligence, breach of fiduciary duty and violations of the Texas Constitution.
CPS alleges ERCOT overcharged it and other electricity retailers billions of dollars by holding prices at the maximum of $9,000 per megawatt hour – a megawatt is enough to power 200 homes on a hot summer day – for 33 hours longer than it had been ordered to by the PUC after the commission ended its directive for rolling blackouts during Winter Storm Uri to prevent a catastrophic grid failure.
Several retail energy companies and cooperatives could not afford ERCOT’s charges and have declared bankruptcy.
To make up for $800 million worth of defaulted payments owed to ERCOT from the Uri charges, Texas passed a bill in May 2021 under which ERCOT received that amount from the state’s rainy-day fund and issued bonds to recoup the balance with charges imposed on CPS Energy and other market participants.
Despite the legislative response to the storm’s fallout, CPS Energy’s counsel, Harriet O’Neill, focused on what the Legislature has yet to do in her opening statements before the Texas Supreme Court on Monday.