Texas Supreme Court Rules ERCOT is Immune From Lawsuits Over 2021 Deadly Winter Storm

Power lines in Texas City, Texas, on Feb. 19, 2021. Thomas Shea/AFP via Getty Images

The Texas Supreme Court has ruled that the Electric Reliability Council of Texas (ERCOT) has sovereign immunity from lawsuits.

In a split decision, the Supreme Court ruled that ERCOT qualifies as a government entity and cannot be sued for Winter Storm Uri in February 2021, which left millions of Texans without power for days and led to at least 246 deaths. ERCOT is a government-formed nonprofit corporation that operates and manages the Texas electrical power grid but is regulated by the Texas Public Utility Commission (PUC).

“ERCOT operates under the direct control and oversight of the PUC, it performs the governmental function of utilities regulation, and it possesses the power to adopt and enforce rules pursuant to that role,” Chief Justice Nathan Hecht wrote in the court’s 40-page majority opinion. (pdf)

“In addition, recognizing immunity satisfies the ‘political, pecuniary, and pragmatic policies’ underlying immunity because it prevents the disruption of key governmental services, protects public funds, and respects separation of powers principles.

“Thus, ERCOT is immune from suit.”

The Texas Supreme Court is made up of nine Republicans.

“ERCOT is pleased with the Texas Supreme Court’s decision, which recognizes the Public Utility Commission’s exclusive jurisdiction and that ERCOT is entitled to sovereign immunity. The Court’s careful consideration of these significant legal issues allows us to continue to focus on our core State responsibilities on ensuring a reliable grid for Texans,” ERCOT said in a statement to The Epoch Times.

People carry groceries from a local gas station in Austin, Texas, on Feb. 15, 2021. Winter Storm Uri brought historic cold weather to Texas, causing traffic delays and power outages. Montinique Monroe/Getty Images

Texas courts have been back and forth over the decision of whether or not ERCOT is an arm of the law.

The recent high court’s decision reversed a previous ruling from the Fifth Court of Appeals in Dallas in February 2022, which found that ERCOT was not entitled to sovereign immunity, according to Cooper and Scully, a Dallas law firm. Likewise, the Fifth Court of Appeals decision overturned the Fourth Court of Appeals in San Antonio, which ruled that ERCOT is a government agency and entitled to immunity.

What if ERCOT could be sued?

If the Supreme Court had ruled that ERCOT was not an arm of the law and could be sued for its actions during the deadly freeze, any judgments would have been passed down to consumers, Ed Hirs, energy economist at the University of Houston, told The Epoch Times.

“ERCOT has no financial resources,” Hirs said. “For example, if people were to sue ERCOT and win, the only way ERCOT could pay off any judgments is to raise rates.”

Hundreds of wrongful death and financial impact lawsuits are still pending, and according to Hirs, those suits will likely continue through other defendants, such as “the power companies and local utilities,” he said.

Hirs said the problems with the power grid are no surprise and that the Texas legislature has made no provision to add capacity after the 2021 storm.

On Monday, ERCOT issued its second weather watch for this week as triple-digit temperatures put more demand on the power grid.

“ERCOT will monitor conditions closely and will deploy all available tools to manage the grid and will continue our reliability-first approach to operations,” ERCOT said in a news release.

Power lines are shown in Houston, Texas, on Feb. 16, 2021. David J. Phillip/AP Photo

Two Cases, One Ruling

The court’s ruling stems from two cases filed against ERCOT. The Supreme Court heard arguments on the combined cases in January.

In a lawsuit filed about a month after Winter Storm Uri, CPS Energy, San Antonio’s municipally owned utility service company, accused ERCOT of allowing wholesale electricity prices to soar to the “highest permissible rate of $9,000” per megawatt hour for a prolonged period. (pdf)

On Feb. 15, 2021, ERCOT declared an “Emergency Energy Alert Level 3,” its highest state of emergency, and “directed transmission operators to curtail firm load.” The PUC directed ERCOT to set pricing to the maximum price allowed to reflect the “scarcity of supply.” Two days later, the firm load was recalled, but prices remained at the cap rate through for 32 additional hours.

“CPS alleges that ERCOT should have ended its pricing intervention when it recalled its firm load shed instructions and that its failure to do so resulted in $16 billion in overcharges to market participants,” Hecht wrote.

Some market participants defaulted after Uri, leading ERCOT to implement its “short-pay procedures” and “default uplift process.”

“These processes spread the impact of the default, allocating the loss among market participants — including CPS — by reducing the amounts that are owed by ERCOT,” the opinion reads.

Lawyers for CPS argued that ERCOT’s processes were illegal and cost the company millions of dollars.

“CPS alleges it was short-paid at least $18 million through the short-pay process. It also alleges that ERCOT intended to apply two downward adjustments to the credit in CPS’ account by over $1 million each through the default process.”

CPS Energy spokeswoman Dominique Ramos said the company has recovered the “back amounts owed to us” and that the case was about ERCOT’s process, according to San Antonio Report.

CPS Energy did not respond to The Epoch Times’ request for comment.

A woman walks through falling snow in San Antonio on Feb. 14, 2021. As temperatures plunged and snow and ice whipped the state, much of Texas' power grid collapsed, followed by its water systems. Tens of millions huddled in frigid homes that slowly grew colder or fled for safety. Eric Gay/AP Photo

The other case involved Dallas-based Panda Power Funds, a private equity firm that sued ERCOT for allegedly misleading reports that caused Panda “substantial financial harm,” according to the court document.

Panda Power alleges it invested $2.2 billion in several power plants based on ERCOT’s 2011 and 2012 energy projections that showed an energy supply shortage for future demands.

“Undermines public trust”

The dissenting justices argued that there is “no statute that designates ERCOT as part of the government.”

“At the heart of sovereign immunity — the doctrine that the Sovereign cannot be sued without its consent — lies a contest between core values of constitutionalism,” wrote the Justices Jeff Boyd and John Phillip Devine in a 53-page dissenting opinion. (pdf) Justices Debra Lehrmann and Brett Busby also dissented in the case.

They argued that ERCOT is a “purely private entity” and that the Supreme Court’s ruling undermines public trust.

“The public expects and trusts that those injured can claim the protection of the laws and that those responsible — to the extent responsibility exists — will be held accountable: the government through the political process and at the ballot box and private entities in court,” the opinion reads.

“But by granting sovereign immunity to a purely private entity that has not been designated as part of the government and without requiring a demonstration of the government’s actual control over the complained-of conduct, the Court undermines this public trust.”