AUSTIN, Texas (CN) — Shielding Texas’ electricity grid manager from liability in dozens of lawsuits tied to a winter storm blackout debacle, the state’s highest court ruled Friday the manager is entitled to sovereign immunity.
The issue of whether the Electric Reliability Council of Texas had sovereign immunity, a legal doctrine that as applied here bars lawsuits against the state of Texas and its agencies, had been dogging the grid operator since before the Winter Storm Uri disaster of February 2021.
Uri brought frigid temperatures to the Lone Star State and its electricity supply chain was not prepared.
Many power plants shut down because their operators and natural gas companies that supply gas-fired plants had not winterized their equipment, forcing ERCOT to implement rolling blackouts due to an electricity shortage.
Hundreds of Texans died from hypothermia and medical complications amid the blackouts which lasted four days straight for some households.
The disaster brought an avalanche of litigation against ERCOT from the families of the deceased and electricity retailers who claimed it had overcharged them by billions of dollars by holding prices at the maximum of $9,000 per megawatt hour for 32 hours longer than it had been told to by the Texas Public Utility Commission, which oversees ERCOT.
The commission ordered the price hike and rolling blackouts during Uri to decrease electricity demand and prevent a catastrophic grid failure.
To efficiently address pretrial matters, court officials created a multi-district litigation pretrial court, funneling all the Uri-related cases filed across the state to a judge in Houston.
As of June 6, the Texas Uri litigation involved 20,600 plaintiffs in 236 cases, many of which named ERCOT as a defendant.
But in its 5-4 order Friday, the Texas Supreme Court found ERCOT is protected from lawsuits. It determined claims against ERCOT must instead be adjudicated in administrative hearings before its parent agency, the Texas Public Utility Commission.
Chief Justice Nathan Hecht, writing for the majority, said ERCOT is entitled to sovereign immunity because the “state has complete authority over everything ERCOT does to perform its statutory functions” assigned to it by Texas lawmakers.
Namely, Hecht noted, state law grants the PUC oversight of ERCOT’s finances and budget and holds that ERCOT is directly accountable to the PUC.
The grid ERCOT manages supplies power to 90% of Texas servicing more than 26 million customers.
Hecht also concluded it makes sense to grant ERCOT immunity for Texas consumers.
“The protection of public funds and assets justifies recognizing ERCOT’s immunity. Even though ERCOT is not funded with tax dollars, any damages payments would nevertheless come from the state and the public,” he wrote in a 40-page order.
ERCOT’s funding comes from administrative fees it charges buyers and sellers in wholesale electricity markets it runs.
“Were a judgment rendered against it, ERCOT would be forced to raise the system administration fee to pay the judgment—assuming the PUC would authorize that—resulting in higher costs for electricity for consumers,” Hecht wrote.
In a dissenting opinion joined by two of their colleagues, Justices Jeff Boyd and John Devine said they agreed with the majority that ERCOT is a governmental unit but they disagreed with the sovereign immunity finding.
“Because 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,” they wrote in a 53-page dissent.
The all-Republican court heard arguments in the two underlying cases in January.
San Antonio’s municipal electric utility, CPS Energy, which both buys and sells power through ERCOT, sued ERCOT in March 2021 on claims of breach of contract, negligence, breach of fiduciary duty and violations of the Texas Constitution.
CPS claimed ERCOT had shorted its payment for electricity by $18 million to make up for defaults by retailers who could not afford to pay the $9,000-per-megawatt-hour charges ERCOT assessed during Uri.
Several retail energy companies and cooperatives declared bankruptcy in the face of ERCOT’s charges.
A trial judge refused to toss out CPS’ lawsuit but an intermediate appeals court reversed and dismissed the case for lack of jurisdiction, finding the PUC had exclusive jurisdiction over CPS’ claims.
CPS then turned to the Texas Supreme Court. Its attorney, Harriet O’Neill, argued in January’s hearing before the high court that ERCOT, which was formed in 1970 by a private association of electric utilities, should be treated as a private entity, not protected against lawsuits, because the Legislature had never conferred government status on it despite many opportunities to do so.
O’Neill noted that before ERCOT was certified as the state’s grid operator in 2001, after Texas deregulated its electricity distribution market in 1999, it performed the same functions it does today.
“Those functions did not suddenly become governmental when ERCOT became the ISO [independent system operator],” she said.
But the Texas Supreme Court agreed Friday with ERCOT’s contention that the PUC has exclusive jurisdiction over CPS’ claims.
So CPS must pursue its grievances against ERCOT in an administrative proceeding before the public utility commission. And only after exhausting all its administrative remedies can CPS sue the grid manager, Hecht wrote in his majority opinion.
Hecht decided Panda Power—the litigant in the case the Texas Supreme Court heard in January alongside CPS’ litigation— must also take its claims against ERCOT through the PUC administrative process prior to seeking relief from the courts.
Panda Power sued ERCOT in 2016 alleging the council’s misrepresentations in 2011 and 2012 about a looming power shortage led it to spend $2.2 billion building three power plants.
Panda Power said it had to sell power for a fraction of the price it anticipated thanks to ERCOT’s distortions and one of its plants went bankrupt.
The dissenting justices also agreed that CPS’ and Panda Power’s claims against ERCOT should be worked out before the PUC. Their sole disagreement was the majority’s conclusion ERCOT is entitled to sovereign immunity.
Texas Governor Greg Abbott took ERCOT's side in an amicus brief, urging a recognition of ERCOT's government immunity. The Republican warned ERCOT's job of ensuring the reliability of Texas' grid would be hampered if it was "subject to competing commands and retrospective money judgments from district judges scattered across our 254 counties."
Nicholas Victor, an associate in Cooper & Scully's Dallas office who published an analysis in March of possible outcomes in the litigation, said Friday's order leaves people who sued ERCOT for Winter Storm Uri damages with only one option, just like Panda Power and CPS Energy: to pursue their claims through the PUC adjudication process.
"This route is underwhelming, as the PUC is not authorized to award monetary damages," Victor said in an emailed statement.
"However, there may still be hope for those aggrieved persons. Justice Boyd and Justice Devine, in their dissent, urged the Texas Legislature to abrogate the decision and pass legislation waiving ERCOT’s newfound immunity. If this occurred, ERCOT would lose its sovereign immunity and would be immediately subject to lawsuits that do not fall within the PUC’s exclusive jurisdiction," he added.
Follow @cam_langford
Subscribe to Closing Arguments
Sign up for new weekly newsletter Closing Arguments to get the latest about ongoing trials, major litigation and hot cases and rulings in courthouses around the U.S. and the world.
