Blog: Texas Supreme Court to Consider ERCOT Sovereign Immunity

A state’s primary power grid operator faces a lawsuit that could determine whether it faces future legal liability.

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Sovereign immunity, a legal principle, protects governments and state agencies from lawsuits. But does sovereign immunity similarly protect ERCOT? That’s the multi-billion-dollar question now before the Texas Supreme Court.

ERCOT, also known as the Electric Reliability Council of Texas, manages the state’s primary electric grid. It also operates in a quasi-governmental fashion, with some responsibilities set forth in Texas law and with a board of directors that answers directly to the Texas Public Utility Commission, a state agency.

But a Dallas company has sued ERCOT alleging that it improperly manipulated projections of the state’s future power needs after coming under political pressure to encourage new power plant construction. ERCOT has countered that it enjoys sovereign immunity and an appeals court has agreed. The case now is before the Texas Supreme Court, which this month agreed to consider the sovereign immunity question, according to reports.

In a recent article about the case, Houston Chronicle reporter L.M. Sixel noted that a high court ruling could have broad implications statewide by determining whether “electricity buyers and sellers can hold the grid manager responsible for pricing errors, poorly conceived power supply forecasts or life-and-death consequences of power outages.”

Reporter L.M. Sixel
The Houston Chronicle

The Dallas company behind the litigation, Panda Power, said it invested $2.2 billion to build three power plants after ERCOT released projections showing the state desperately needed more power, according to Sixel’s reporting. But the next year ERCOT released new projections showing Texas with healthier power margins. The new projections resulted in lower power prices than Panda Power anticipated, which the company said undermined its investments.

Panda sued ERCOT in 2016, alleging fraud, negligent misrepresentation and breach of fiduciary duty, seeking $2.7 billion in damages. ERCOT, in making its sovereign immunity claim, has countered that because power generation fees fund its operations that any verdict ordering it to pay damages ultimately would saddle customers with higher electricity prices.

The Texas Supreme Court has not yet set a hearing date for the case.

— R.A. Dyer