The Texas Supreme Court reversed an Austin Court of Appeals decision invalidating a PUC order setting market clearing prices at the maximum level in the event of an extreme weather event.
RWE Renewables Americas, LLC and TX Hereford Wind, L.L.C. v. Public Utility Commission of Texas (No. 23-0555; June 14, 2024) stemmed from legislation adopted in 2021 in the wake of Winter Storm Uri. The legislature amended § 39.151, Utilities Code, to require ERCOT’s governing body to “establish and implement a formal process for adopting new protocols or revising existing protocols” and to “require that new or revised protocols may not take effect until the commission approves a market impact statement describing the new or revised protocols.” The statute further authorizes the PUC to delegate to ERCOT rulemaking and enforcement relating to the reliability of the regional electricity network, subject to PUC oversight. ERCOT responded to the legislation by filing a Nodal Protocol Revision Request (NPRR 1081) that modified the calculation of “the Real-Time On-Line Reliability Deployment Price Adder,” allowing ERCOT to set the wholesale market prices at the cap (which at the time was $9,000/MWh) in the event of an Energy Emergency Alert Level 3 (EEA3). The ERCOT board approved NPRR 1081 on June 28, 2021 and sent it to the PUC for approval. The PUC issued an order approving NPRR 1081 on July 16.
Shortly thereafter, RWE and TX Hereford filed a direct appeal challenging the validity of the PUC’s order approving NPRR 1081 pursuant to § 39.001(e), Utilities Code. Plaintiffs argued that the exceeds the PUC’s statutory authority because NPRR 1081, by setting prices, constitutes a “competition” rule. In the alternative they assert that the PUC’s violated the rulemaking procedures of the APA when it approved the rule without public notice, hearing, or explanation. The PUC countered that the order is not a “competition” rule, or indeed a rule at all, and cannot be directly appealed. It argued further that even if the order may be considered to be a rule, the agency substantially complied with the APA.
The court of appeals held for the plaintiffs. In an opinion by former Chief Justice Woody Jones, the court first determined that the order constituted a “rule” because (1) it required PUC approval before taking effect, and (2) it is “a pricing policy that is intended to, and will, affect the rights of private parties” (citation omitted). The court did not buy the PUC’s assertion that the order simply “validat[ed] [] ERCOT’s operating standard.” Rather, observing that ERCOT functions under delegated authority from the PUC and subject to PUC oversight, the court characterized “ERCOT as ‘something akin to a subagency between [the Commission] and market participants’ and noted that ERCOT, while a separate entity, is one ‘over which [the Commission] has ‘complete authority’” (citation omitted).
Having determined that NPRR 1081 is a rule, the court quickly concluded that it was a “competition” rule subject to direct appeal. Because § 39.001 “mandates that the wholesale price of electricity should, if possible, be set by the market, not by government regulators,” NPRR 1081, a rule fixing market prices, “violate[s] the Legislature’s requirement in the Utilities Code … that the Commission use competitive methods to the greatest extent feasible and impose the least impact on competition” (citation omitted).
Finally, the court held that the PUC did not even attempt to comply with the APA, much less that anything ERCOT did constituted “substantial compliance.” Neither entity gave public notice, permitted public participation, or explained the rationale for its decision in the format required for agency orders by § 2001.033 (i.e, requiring a “reasoned justification for the rule” consisting of a summary of public comments, the factual basis for the rule, the reasons why the agency disagrees with party submissions and proposals, etc.).
In an opinion by Justice Lehrmann, SCOTX disagreed with the court of appeals that the PUC’s order approving NPRR 1081 constituted a “competition rule adopted by the commission” under § 39.151. Since the order did not implicate the PUC’s rulemaking authority from the get-go, the courts had no jurisdiction to review it. ERCOT protocols and PUC rules, Justice Lehrmann observed, have “separate” but “complementary” purposes and procedures but cannot be conflated, as RWE argued. In the 2021 amendments to § 39.151, the Legislature explicitly distinguished the respective functions of the two entities by differentiating between a competition rule, which must be “adopted” by the PUC, and new protocols promulgated by ERCOT, which must simply be “approved.” According to the plain text of the statute, consequently, the APA applies to the former but not the latter. SCOTX thus dismissed the case.
When coupled with SCOTX’s previous opinion in Luminant Energy Company LLC v. Public Utility Commission of Texas (No. 23-0231; March 17, 2023), this decision closes the books on legal challenges to the PUC’s actions related to wholesale pricing during Winter Storm Uri. Whereas in Luminant the Court held that the PUC complied with the APA and acted within its statutory authority, RWE Renewables stands merely for the proposition that the Legislature’s response to the PUC’s actions during the crisis was its business and not a matter for the courts.
TCJL Research Intern Shaan Rao Singh contributed to the research and composition of this article.
