Still smarting from the fallout from Winter Storm Uri, the Legislature has devoted a lot of time this session to ensuring grid reliability and keeping the lid on the energy market during future winter storms. Part of this strategy, however, includes punitive measures aimed primarily at pipelines that supply power generators. While it generally makes sense to hold people accountable if they break the law, doing it in a way that sidesteps the due process protections owed to anyone accused of wrongdoing does not.
One such proposal, SB 1872, cleared Senate committee this week and is headed to the floor. The proposal has two parts. First, it voids a confidentiality provision in a contract between an owner or operator of a pipeline and a shipper unless a party to the contract makes a written request for one before execution of the contract. It is unclear to us how this provision is supposed to work, since the inclusion of a confidentiality provision in a draft contract would seem to confirm that at least one of the parties wants it in there. Nevertheless, this part of the bill will very likely invite litigation. It could also be used in an attempt to pierce confidentiality to gather information that could be used in another lawsuit, perhaps even a mass action, or for purposes of the quasi-criminal investigation authorized by the second part of the bill. Finally, it’s not clear who can void a contractual confidentiality provision. Presumably, a party can, but the language of the bill suggests that other non-party players could get involved.
That brings us to the second part, which applies during a weather emergency. It provides that if the purchaser receives notice from the pipeline that the pipeline cannot make deliveries under the contract due to force majeure (i.e., a weather disaster), the purchaser may notify the Railroad Commission that it received and notice and “reasonably believes that the person sold the natural gas would have otherwise been available for delivery to the purchaser to a different purchaser at a higher price than that provided in the original purchaser’s contract.” The commission may then investigate the “complaint,” make a determination that the pipeline violated state law, and refer the matter to the attorney general for an enforcement action to collect penalties.
This is a highly irregular legal process, if it can be called that. First, if a pipeline doesn’t deliver the gas pursuant to a force majeure clause, the appropriate remedy is a lawsuit for breach of contract. In such a lawsuit, the Texas Rules of Civil Procedure will govern discovery of evidence pertinent to the actual situation. Was the declaration of force majeure valid? What happened to the gas owed under the contract? Was it sold to a third party? At what price? Once all that is done, let the judge and the jury sort it out. The problem is, the bill bypasses the judicial system we have always relied on to adjudicate these types of contract disputes. Or, perhaps more accurately, the bill puts in place an inquisitorial function (it does not rise to the level of a “procedure”) designed to dispense with the rules altogether and the safeguards against inquisitorial abuse that they contain.
Second, the bill does not require that a disappointed purchaser present with a complaint any documentation whatsoever. All the bill requires is a “reasonable belief.” That is not a standard and means absolutely nothing in this context. What it does mean is that this inquisitorial function may be triggered by an allegation unfounded in the law or the facts. In a court of law, a Rule 91a motion to dismiss would take care of this problem. But under SB 1872, a pipeline against whom an allegation has been made has no opportunity to respond and no mechanism by which it can get a fair hearing with procedural and evidentiary protections. At the very least, a complaint and determination process should have to follow the Administrative Procedures Act, but the bill dispenses with that, too. It merely says that upon receiving a complaint, baseless or otherwise, the commission may investigate and make a determination. This has a certain Star Chamber quality to it that should give everyone pause, but there are so many of these bills this session that we’re becoming numb to their implications.
Third, if a complaint is determined, by whatever ad hoc process the bill envisions, to be baseless, the party who made it gets a free pass, while the party against whom it was made has to endure the cost and reputational damage associated with an investigation. We think it not unfair to say that the bill actually incentivizes false complaints because, not only are there no consequences for making them, the complainant can and probably will use the fact of the “investigation” in whatever private litigation it pursues against the pipeline. The innuendo alone will make this litigation more expensive and painful than it might otherwise have been. Even worse, it will also be used to leverage a pipeline into settlement, even if the allegation had no merit to begin with.
Fourth, and finally, getting the OAG involved in what is essentially a contract dispute prior to any customary methods of discovery invites abuse. The reason we have rules of procedure is to make sure that discovery is conducted under the watchful eye of the court and the parties’ remedies against abuse are preserved. This bill sweeps all that away and politicizes what should be an orderly exercise in due process of law. Again, at the very least, the OAG should be involved only if the administrative process and any subsequent judicial review indicates that further enforcement is necessary.
If you have visited this site on a regular basis in the past several months, you may have seen very similar analyses of a wide array of proposals that share one or more of these adverse due process implications. At some point, we have to slow down the train and ask ourselves what we mean by “the rule of law.” From our standpoint, “rule” has two meanings here. First, it means that we are “ruled”—governed—by law. Many of the bills we are seeing, such as SB 1872, substitute governance by law with governance by extrajudicial processes. This is a dangerous experiment for many reasons, but we should be very wary of shifting the administration of justice away from the branch of government the people of Texas have entrusted with it. Second, “rule” means the entire tradition of the English common law that has passed down to us from “time immemorial,” as Professor Blackstone put it. This tradition is a thousand years old and, in our view, the great bulwark upon which our democratic system is founded. It is also the only line of defense we have that underwrites and protects our individual rights and liberties. If we cast it away as to one person in the heat of the politics of the moment, we cast it away as to all. And then where will be?
