In the ongoing navigation of Winter Storm Uri’s devastating aftermath, Luminant Energy Company LLC v. Public Utility Commission of Texas (No. 23-0231; March 17, 2023) has reached its long awaited Texas Supreme Court decision which reversed the Austin Court of Appeals’ ruling that the Commission overstepped its statutory authority by raising electricity prices during the storm.

Rewinding to February 2021, Winter Storm Uri had crippled Texas, engulfing it in a State of Disaster, and escalating the Electric Reliability Council of Texas (ERCOT) to its highest state of emergency (EEA3). To prevent the complete collapse of the Texas grid, ERCOT sprung into action by aggressively shedding load. However, this worsened the state’s energy shortage which ERCOT’s Scarcity Pricing Mechanism failed to reflect, displaying prices far below the system-wide cap of $9,000/MWh. So, to stimulate electricity supply the Commission ordered that prices be raised to the system-wide cap of $9,000/MWh. Its second order prevented ERCOT from correcting past prices. However, the emergency measures left some firms in financial distress like Luminant—a power company that allegedly lost a net $1 billion buying electricity at $9,000/MWh. It filed administrative challenges to the invoices received for said purchases and sought judicial review of the Orders in the Austin Court of Appeals. The court’s two-judge panel invalidated the Orders, claiming they exceeded the Commission’s authority under Chapter 39 of the Public Utility Regulatory Act (PURA).
In a majority opinion filed by Chief Justice Hecht, the Texas Supreme Court reversed the court of appeals’ decision and affirmed the Orders, finding that they complied with the Administrative Procedure Act (APA) and were supported by PURA.
The Commission raised three issues to dispute the court’s jurisdiction. They argued the appeal lacked “constitutional standing” (meaning the injury be “redressable by court order”), likening Luminant’s redress—monetary recovery—to unscrambling an egg because it was (1) not in the court of appeals’ control under PURA and (2) too speculative to hold in concurrent ERCOT administrative proceedings, since any payment received would come from market participants. But perhaps billion dollar eggs can be unscrambled as Luminant pointed out there were existing and tested ERCOT protocols authorizing invoice repricing and market-wide resettlements. Thus, the Court affirmed Luminant’s standing to seek judicial review of the Orders. The Court further rejected the Commission’s moot claim, because while the Orders ‘expired’ on their own when the market restabilized, Luminant’s financial loss did not. The Commission then contested “judicial review of competition rules” permitted under PURA by stating the Orders were not “rules” (by APA’s definition) as they “applied only to a single, discrete event”. However, the Court disagreed, alleging the Orders implemented a “policy” that maximum scarcity necessitates boosting load and thus maximizing prices. Because the Orders were “rules”, the Court affirmed the court’s jurisdiction to review them.
To discern if the Orders were invalid, the Texas Supreme Court stated they must either “[contravene] specific statutory language” or “[run] counter to the general objectives of the statute”. Examining two general objectives, the lower court based its analysis on whether ensuring grid reliability in Section 39.151 was an exception to Section 39.001’s general preference for the Commission to “rel[y] on competition rather than regulation to set prices”; it opted to consider Section 39.001’s objectives instead of 39.151’s. However, the Court notes that this logic mistreats the two sections as conflicting rather than harmonious within their statute’s larger framework. It also highlighted how Luminant’s claim that Section 39.001 bars the Commission from price-setting arose from it “disregarding much of the section’s language” which paints the market as largely free while still acknowledging room for regulation. The Court clears this up in finding that (a) Section 39.151 authorized the Orders, giving the Commission “‘complete authority’ to ensure that ERCOT adequately performs [its] duty”, and (b) Section 39.001 supplemented it, saying that the “objective” of prices being “set by competition may in some circumstances, have to yield”. Perhaps most profoundly, by citing Texas Board of Chiropractic Examiners v. Texas Medical Ass’n, the Court established that it was the Commission’s job, not the judiciary’s, to determine if these “circumstances” were present and how to respond. So, in cases “[w]hen the claim is that an agency rule exceeds the scope of statutory law, the judiciary’s role is purely textual”. Following this standard, the Court refused further inquiry on the Orders’ necessity and their effects on grid functioning, and affirmed the Orders’ legal validity.
Lastly, the Texas Supreme Court examined Luminant’s alternative argument that the Orders violate the Administrative Procedure Act (APA). The Court argued that the Orders’ introductory paragraphs contained language that fulfilled the statutory requirement of “written finding of imminent peril and reasons for that finding”. In accordance with APA standards, the Commission “t[ook] appropriate measures to make emergency rules known to persons who may be affected by them” by immediately posting Orders on its website, summarizing them on ERCOT’s, and emailing notices to its distribution list, of which Luminnant did not deny receiving. Responding to Luminant’s contention that this “hasty process” lost them hundreds of millions of dollars”, the Court makes a key distinction: that the complaint concerned substance not procedure, and thus bore no weight. Ultimately, the Texas Supreme Court affirmed that the Order “substantially complied” with its statutory requirements.

This article was researched and written by TCJL Research Intern Shaan Rao Singh.

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