Texas Supreme Court Hears Oral Argument in Major Winter Storm Uri Case

January 31, 2024

In February 2021, winter storm Uri hit Texas, causing a sharp spike in electricity demand that could not be satisfied by available generation resources, resulting in statewide blackouts. Commercial, industrial and residential retail customers across Texas sued hundreds of entities involved in the Texas electricity market for damages sustained due to the resulting electrical outages, including wholesale power generators.

On Sept. 29, 2023, the Supreme Court of Texas announced it would review a lower court’s reversal of two winter storm Uri orders by the Public Utility Commission of Texas (PUCT), which date back to 2021. During the historic winter storm that caused roughly $195 billion in damages, the PUCT’s orders raised power prices in the Electric Reliability Council of Texas (ERCOT) to $9,000/MWh, impacting countless companies and consumers.

In Public Utility Commission of Texas v. Luminant Energy Company LLC, No. 23-0231, the Supreme Court of Texas reviews the hotly contested decision of the Texas Court of Appeals for the Third District. The Court of Appeals had reversed the PUCT’s controversial orders and remanded them for further proceedings, finding that PUCT had “eliminat[ed] competition entirely” by setting the price of electricity at the cap of $9,000/MWh. Should the Supreme Court uphold the Court of Appeals’ reversal, it is unclear how the PUCT will practically resolve the pricing issues and potential remedies upon remand, but it likely would need to hold proceedings addressing these items under great scrutiny.

On Jan. 30, 2024, six justices asked questions during 45 minutes of oral argument in this case. Lanora C. Pettit with the Office of the Attorney General represented the petitioner PUCT. Pettit argued that the PUCT orders did not constitute rules, depriving the court of jurisdiction. Specifically, Pettit argued that the orders were simply directives to comply with existing rules that would require the market price to equal the value of lost load during a period of load shed, and the orders did not qualify as competitive rules because they were not issued with the intent of adjusting monopolistic behavior.

Multiple justices asked questions regarding the consequences in the event the orders were deemed rules, and Pettit argued that the orders were substantially compliant with the Administrative Procedure Act (APA) requirements even if the court found they qualified as rules. Justice Brett Busby asked how the orders could have substantially complied with the APA, given they were not filed with the secretary of state as required by the APA, and Pettit replied that is a mere technical defect and that the respondents were not harmed as they had actual notice of the agency’s rulings in question.

Counsel for petitioners Calpine Corporation and Talen Energy Corporation discussed whether the PUCT exceeded its statutory authority. Petitioners’ counsel argued that the PUCT must ensure a competitive market and the reliability of the electrical grid. In this vein, counsel argued, PUCT had authority to bring pricing back in line with the rules, and before the PUCT orders, the pricing was anti-competitive.

Justice Jimmy Blacklock asked whether it mattered if the orders actually saved the grid, and petitioners’ counsel replied that Blacklock posed a factual question, and the court is limited to determining legal questions. Petitioners’ counsel also asserted that the Court of Appeals’ holding that PUCT must act in the “most competitive” fashion is a statutory misreading that does not recognize deference to PUCT’s decision-making and ignores repeated statutory language emphasizing the responsibility of the PUCT to ensure reliability.

Counsel for respondent Luminant Energy Co. argued that “administrative agencies have to follow the law, just like ordinary citizens do, even, or perhaps especially, in times of emergency.” Respondent’s counsel further argued that the PUCT defied the legislature’s clear prohibition against setting wholesale pricing by “regulatory fiat,” asserting PUCT used generalized statutory language to ignore a direct legislative ban.

Justice Jane Bland asked if the goal of maintaining a competitive market is subordinate to maintaining reliability of the grid, and respondent’s counsel replied that PUCT “killed competition to save competition” because there is nothing competitive about price setting. Replying to Pettit’s argument regarding substantial compliance, respondent’s counsel argued that filing is not subject to substantial compliance exceptions, given filing is what initiates the rulemaking procedure, and that substantial compliance applies only to the filing requirement, not the effectiveness requirement. Thus, the rule cannot be effective without compliance.

Regarding questions related to the fact that PUCT was responding to an emergency, respondent’s counsel argued that there are streamlined procedures for emergency situations, and PUCT could have complied with those procedures within an hour. Blacklock asked if PUCT lacked such authority even if society would be in the “stone age for a few weeks” as a result, and respondent’s counsel replied that the legislature provided PUCT many tools, but PUCT cannot set wholesale prices regardless of the situation. In closing, respondent’s counsel argued that the PUCT acted as if it had “agency omnipotence.”