Texas regulators were within their rights to lock the price of electricity at its maximum level during Winter Storm Uri in 2021, according to twin rulings this month by the state’s Supreme Court.
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Texas regulators were within their rights to lock the price of electricity at its maximum level during Winter Storm Uri in 2021, according to twin rulings this month by the state’s Supreme Court.
Both rulings relate to the Public Utility Commission actions during the Uri-related mass outages that swept the state. In an attempt to coax generators back on line, the agency’s commissioners issued an emergency order requiring the state’s principal grid operator, the Electric Reliability Council of Texas, to fix wholesale power prices at the then-offer cap of $9,000 per megawatt hour. The decision did not bring generators back online. It did, however, result in widespread economic losses and several bankruptcies.
On June 14, the Supreme Court of Texas issued two rulings relating to those Uri-related regulatory actions, and in each the court largely sided with the PUC. That is, in Pub. Util. Comm’n of Tex. v. Luminant Energy Co., the Court found that the Winter Storm Uri “scarcity pricing order” issued by the PUC was valid under the Public Utility Regulatory Act and the Administrative Procedure Act. Separately, in Pub. Util. Comm’n of Tex. v. RWE Renewables Americas, LLC, the court validated the PUC’s approval of Uri-related rules by ERCOT. Both rulings expand the PUC’s authority and discretion.
LITIGATION BACKGROUND
Both Luminant and RWE Renewables relate to the Scarcity Pricing Mechanism (SPM) policy that the PUC—and subsequently ERCOT—implemented in response to Uri. During the storm, ERCOT ordered system-wide load shed — that is, it ordered rolling blackouts — to maintain system frequency. Wholesale power prices, however, remained relatively modest. In response, then-Commission Chair Deann Walker decided that the Scarcity Pricing Mechanism, which should increase prices during times of low generation supply, had malfunctioned. Following that reasoning, the PUC issued an order directing ERCOT, when “customer load is being shed,” to set market prices at the $9,000 mWh systemwide offer cap. (This is in contrast to more typical prices of $50 per mWh). Luminant suffered significant monetary losses and sued the agency.
ERCOT subsequently codified the SPM Order in its electricity market rules and procedures, which are known as “Nodal Protocols,” and the Commission then issued an order to approve that ERCOT decision. RWE Renewables responded by filing its own lawsuit, alleging the Uri-related Nodal Protocol change constituted an unlawful rulemaking.
LUMINANT HOLDS RELIABILITY TRUMPS MARKET COMPETITION
The key issue in Pub. Util. Comm’n of Tex. v. Luminant Energy was a question of statutory interpretation. That is, the lawsuit focused on tensions between two sections of the Public Utility Regularly Act — one that broadly contemplates that the Texas power market receive direction through “competitive rather than regulatory methods” and another directing the PUC to “adopt and enforce rules relating to the reliability” of the ERCOT market.
Luminant argued that the anti-regulatory mandate in the Public Utility Regulatory Act (PURA) is paramount, and thus precludes market intervention—such as the Scarcity Pricing Mechanism order—to regulate prices. But the Supreme Court of Texas disagreed, reasoning that because PURA, in many instances, authorizes market regulation, market regulation is similarly appropriate to ensure reliability. The court also held that it is the PUC’s job—not the judiciary’s—to determine when conditions require market regulation.
RWE RENEWABLES UPHOLDS RELAXED ERCOT PROTOCOL APPROVAL PROCESS
By contrast, the threshold issue in the RWE Renewables case was whether the PUC’s “approval” of an Uri-related ERCOT Nodal Protocol Revision Request (NPRR) should be construed as a “competition rule” subject to administrative rulemaking requirements. RWE Renewables sued under a provision of PURA that allows for judicial review of competition rules, and that requires the PUC to establish such rules under the Administrative Procedure Act. But the PUC argued its order should not be construed as a “competition rule” but rather it simply represented the approval of an ERCOT policy previously adopted through the ERCOT stakeholder process. The Court, therefore, lacks jurisdiction in the matter, according to the PUC. The Supreme Court of Texas agreed with this reasoning and sided with the state agency.