Reed Smith Client Alerts

Key takeaways:

  • The High Court affirms PUC's orders raising prices to $9,000/MWh during Winter Storm Uri.
  • The PUC/ERCOT could resettle the power market prices, they just do not have to.
  • The Public Utility Regulatory Act’s market-based pricing objective sometimes has to yield to its power-grid reliability objective.
  • The court deferred to the administrative agency to determine when such circumstances exist.
  • The PUC’s orders during the storm complied with the emergency rule-making requirements under the of Administrative Procedure Act. 

On June 14, 2024, the Supreme Court of Texas issued its opinion in PUC of Tex. v. Luminant Energy Co. LLC, No. 23-0231, 2024 Tex. LEXIS 465 (June 14, 2024). This high-profile case reviewed the Austin Court of Appeals’ striking down of the Public Utility Commission of Texas (PUC) and Electric Reliability Council of Texas's (ERCOT) orders maxing out the price of power during the 2021 Texas Winter Storm Uri. 

As former PUC Chairman Arthur D’Andrea famously put it after the storm, the PUC and ERCOT cannot just unscramble the pricing egg after the storm. The Supreme Court, on the other hand, observed that while the egg actually could be unscrambled, it just did not need to be.

In short, the Supreme Court held that (1) the court had jurisdiction, (2) the PUC’s pricing orders did not exceed its authority under the Public Utility Regulatory Act (PURA) and (3) the PUC substantially complied with the Administrative Procedure Act’s (APA) emergency rulemaking requirements. The court reversed the judgment of the Austin Court of Appeals and rendered judgment affirming the February 2021 pricing orders. Id. at 2.

The court set forth the relevant context and objectives of PURA as well as the well-known history of Winter Storm Uri’s disastrous impact on the Texas power grid in February 2021. The disputes in the case focused on the two February 2021 orders from the PUC that had the effect of raising the price of electricity to the system-wide offer cap of $9,000. Id. at *4-15.

The court addressed the jurisdictional questions first. Regarding standing, the PUC argued that Luminant and the power-purchaser parties lacked standing because their injuries were not redressable by the court. The PUC contended that the remedy Luminant sought was “retrospective repricing,” i.e., to get its money back for overpaying for power. PURA does not authorize the court to grant that relief, it only has authority to affirm a PUC rule or to reverse and remand it to the PUC—not to award damages. Luminant and the other power purchasers pointed out in response that they had addressed this issue by initiating administrative proceedings under PURA contesting the amount of the invoices received from ERCOT, and any ruling by the court would be controlling in those proceedings. The PUC responded that since ERCOT is merely a clearinghouse and does not “maintain a fund of money,” any payment would have to come from other market participants. Therefore, any potential recovery was mere speculation. In other words, the PUC basically argued that “the egg cannot be unscrambled.” Id. at *16. The court rejected the PUC’s argument because the egg in fact can be unscrambled and has been unscrambled in the past. ERCOT has a procedure for and experience with market-wide resettlements, including one that occurred just prior to the storm. Thus, the court found that Luminant and the power purchasing respondents had standing. Id.